Financial fraud,director reputation,and shareholder wealth |
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Authors: | Eliezer M. Fich Anil Shivdasani |
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Affiliation: | 1. LeBow College of Business, Drexel University, Philadelphia, PA 19104, USA;2. Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC 27599, USA |
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Abstract: | We investigate the reputational impact of financial fraud for outside directors based on a sample of firms facing shareholder class action lawsuits. Following a financial fraud lawsuit, outside directors do not face abnormal turnover on the board of the sued firm but experience a significant decline in other board seats held. This decline in other directorships is greater for more severe allegations of fraud and when the outside director bears greater responsibility for monitoring fraud. Interlocked firms that share directors with the sued firm also exhibit valuation declines at the lawsuit filing. Fraud-affiliated directors are more likely to lose directorships at firms with stronger corporate governance and their departure is associated with valuation increases for these firms. |
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Keywords: | G30 G34 J33: K22 M41 |
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