An empirical analysis of the relation between corporate governance characteristics and the prevention of financial statement fraud

Nouha, Khoufi; Khoufi, Walid

doi:10.1504/ijmed.2018.10017526

Cited by 2 publications

(5 citation statements)

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“…Moreover, we note some insignificant links between political connections and enforcement actions (Ghafoor et al 2019;Hasnan et al 2013), and between multiple directorships and restatements (Hasnan et al 2020). Khoufi and Khoufi (2018) represents the only study with a negative impact of board size on fraud events. Other included studies did not find any significant influence of board size on restatements (Hasnan et al 2020), enforcement activities (Romano and Guerrini 2012), and fraud (Razali and Arshad 2014;Salleh and Othman 2016;Shan et al 2013;Tan et al 2017).…”

Section: Board Networkmentioning

confidence: 79%

“…Two papers indicated a negative impact of independent members on restatements (Lary and Taylor 2012), and enforcement activities (Romano and Guerrini 2012). Another two studies could not find any significant impact on fraud (Khoufi and Khoufi 2018;Marzuki et al 2019). Tan and Young (2015) compared "little r" restatements and big ones and found that board independence leads to more little financial restatements.…”

Section: Audit Committee Independencementioning

confidence: 99%

“…CEO duality represents one of the most important proxies of CEO power. Some researchers stressed a positive influence on fraud (Khoufi and Khoufi 2018) and enforcement actions (Yang et al 2017). Other researchers reported an insignificant impact on enforcement actions (Inya et al 2018;Romano and Guerrini 2012) and fraud events (Salleh and Othman 2016;Shan et al 2013;Tan et al 2017).…”

Section: Ceo Power and Dualitymentioning

confidence: 99%

“…Prior research results stressed a heterogeneous relationship between board independence and financial misconduct from an international perspective. Some researchers found a negative relationship between board independence and restatements (Baber et al 2012), enforcement actions (Romano and Guerrini 2012), and fraud (Razali and Arshad 2014;Khoufi and Khoufi 2018). Verriest et al (2013) stated a positive impact of board independence on restatements, relying on a European setting.…”

Section: Board Independencementioning

confidence: 99%

“…Lary and Taylor (2012) also found a negative impact of combined financial and industry expertise on restatements. Financial expertise (Khoufi and Khoufi 2018) and audit committee effectiveness (Razali and Arshad 2014) are also related to fewer fraud events. In contrast to this, Albrecht et al (2018) stressed an increased influence of accounting expertise on restatements, moderated by excess compensation and earnings management.…”

Section: Audit Committee Expertisementioning

confidence: 99%

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The link between corporate governance and corporate financial misconduct. A review of archival studies and implications for future research

Velte

2021

Manag Rev Q

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In this article, we review recent archival research articles (98 studies) on the impact of corporate governance on restatements, enforcement activities and fraud as corporate financial misconduct. Applying an agency-theoretical view, we mainly differentiate between four levels of corporate governance (group, individual, firm, and institutional level). We find that financial restatements on the one hand and the group and individual level of corporate governance on the other hand are dominant in our literature review. Enforcement actions and fraud events as misconduct proxies, and the firm and institutional level of corporate governance are of lower relevance yet. The following review highlights that many studies on corporate governance find inconclusive results on firms’ financial misconduct. But there are indications that board expertise and especially gender diversity in the top management decreases firms’ financial misconduct. We know very little about the impact of non-shareholder stakeholders’ monitoring role on misconduct yet. In discussing potential future research, we emphasize the need for a more detailed analysis of misconduct proxies, recognition of moderator and especially mediator variables, especially in the interplay of the board of directors and external auditors.

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Section: Board Networkmentioning

confidence: 79%

Section: Audit Committee Independencementioning

confidence: 99%

Section: Ceo Power and Dualitymentioning

confidence: 99%

Section: Board Independencementioning

confidence: 99%

Section: Audit Committee Expertisementioning

confidence: 99%

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The link between corporate governance and corporate financial misconduct. A review of archival studies and implications for future research

Velte

2021

Manag Rev Q

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Interpersonal population diversity in the bank boardroom and corporate misconduct

Vasilakis,

Thornton

2024

JAL

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PurposeThis research empirically establishes that the interpersonal population diversity of executive board members partly explains the differences in financial misconduct across US banks. It advances the hypothesis that heterogeneity in the composition of an interpersonal population and diverse traits of board members, originating from the prehistoric course of the exodus of Homo sapiens from East Africa tens of thousands of years ago, is an important factor explaining the effectiveness of executive board monitoring with respect to a bank engaging in financial misconduct. The underlying intuition is that population-fragmented societies, characterized by mistrust, preference heterogeneity and corruption, find it difficult to sustain collective integrity action.Design/methodology/approachEmploying a panel of US banks from 1998 to 2019 we find that adding directors from countries with different levels of interpersonal population diversity is positively associated with financial misconduct as measured by enforcement and class action litigation against banks by the main regulatory agencies. Furthermore, we document that the more population-diverse bank boards are more likely to commit misconduct, consistent with a mechanism of inter-generational transmission of cultural norms of mistrust and non-cooperation.FindingsWe find that adding directors from countries with different levels of interpersonal population diversity is positively associated with financial misconduct as measured by enforcement and class action litigation against banks by the main regulatory agencies. These results are robust to controlling for bank-specific variables, including other board characteristics, and to the use of instrumental variables.Practical implicationsThe findings suggest that reducing financial misconduct by banks likely requires reducing the interpersonal population diversity of banks’ executive boards.Originality/valueWe show how bank boards with different interpersonal population diversity impact the likelihood of engaging in misconduct provides evidence of the microeconomic effects of interpersonal population diversity. We show the negative results of diversity that they can have on the management of a firm given that populated diverse boards are more likely to lead to higher levels of misconduct. Our evidence reveals that banks having interpersonal population fragmented boards are more likely to commit misconduct given the cultural norms of mistrust and the lack of societal cohesiveness.

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An empirical analysis of the relation between corporate governance characteristics and the prevention of financial statement fraud

Cited by 2 publications

References 0 publications

The link between corporate governance and corporate financial misconduct. A review of archival studies and implications for future research

The link between corporate governance and corporate financial misconduct. A review of archival studies and implications for future research

Interpersonal population diversity in the bank boardroom and corporate misconduct

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