Are Qualified and Experienced Outside Directors Willing to Join Fraudulent Firms and If So, Why?

Ghannam, Samir; Bugeja, Martin; Matolcsy, Zoltan; Spiropoulos, Helen

doi:10.2308/accr-52195

Cited by 26 publications

(21 citation statements)

References 58 publications

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“…Similarly, we also controlled for the Proportion of non-executive directors on the boards. Firms facing legal risks are more likely to appoint non-executive directors to their boards to signal firm stakeholders that they are “correcting their acts” and strengthening the board’s monitoring (Ghannam et al, 2018). Accordingly, we operationalized the Proportion of non-executive directors as the number of non-executive directors divided by total number of directors serving on the board.…”

Section: Methodsmentioning

confidence: 99%

From tokens to key players: The influence of board gender and ethnic diversity on corporate discrimination lawsuits

Abebe

Dadanlar

2019

Human Relations

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Does the appointment of more women and ethnic minority directors on corporate boards help combat discriminatory work environments? This empirical study addresses this question by exploring the occurrence of large-scale discrimination lawsuits. Drawing from social identity theory and empathy-based perspectives, we propose that a greater presence of female and minority directors on boards reduces the likelihood of large-scale discrimination lawsuits given their propensity to advocate for underrepresented groups in the workplace. Our analysis of data from 452 US firms from 2010–2015 indicates that a higher proportion of female and minority directors on boards is associated with a lower likelihood of such lawsuits. Specifically, the likelihood of such lawsuits is lower where there are three or more (a critical mass) female and minority directors. “Token” appointments (one or two female or minority directors) do not reduce the occurrence of these lawsuits. Further, the joint presence of minority and female directors on boards significantly reduces the likelihood of such lawsuits. Finally, we found that female CEOs help in reducing the occurrence of such lawsuits when the board has two or more female directors. Overall, our findings highlight the utility of greater gender and ethnic diversity on boards in combating workplace discrimination.

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Section: Methodsmentioning

confidence: 99%

From tokens to key players: The influence of board gender and ethnic diversity on corporate discrimination lawsuits

Abebe

Dadanlar

2019

Human Relations

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“…Such new skills and expertise brought by new CEOs are expected to benefit bankrupt firms (Adams & Mansi, 2009; Furtado & Rozeff, 1987; Menon & Williams, 2008). Consistent with this expectation, empirical evidence shows that executives and directors who are appointed after negative corporate events are generally selected for their abilities and skill and are well qualified and experienced (Ghannam et al., 2019; Marcel & Cowen, 2014). Therefore, in the bankruptcy context, we argue that new replacement CEOs are expected to bring new skills and qualifications that can assist firms in surviving the bankruptcy process.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 95%

“…Replacing the CEO can allow firms to access expertise and abilities offered by the newly appointed candidate (e.g., Ghannam, Bugeja, Matolcsy, & Spiropoulos, 2019; Marcel & Cowen, 2014). For example, ample anecdotal evidence shows that firms in Chapter 11 appoint CEO candidates who specialize in business ‘turn‐arounds’, crisis management or debt restructuring (Al‐Muslim & Gladstone, 2019; Coleman‐Lochner & Holman, 2020; Jeans, 2020; Klebnikov, 2020).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

“…Similarly, Ghannam et al. (2019) find that firms tend to replace their existing directors with highly qualified and experienced new directors in the wake of fraud, particularly directors with accounting and legal qualifications that can help reduce future fraud. If such improvements in managerial quality also occur in the context of CEO turnover during bankruptcy proceedings, then we would expect to see an increase in managerial abilities associated with the turnovers in our sample.…”

Section: Economic Explanationsmentioning

confidence: 99%

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CEO turnover and bankrupt firms’ emergence

Lin

Liu

Tan

et al. 2020

Business Fin & Account

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This paper examines whether CEO turnover within a bankrupt firm predicts the firm's likelihood to reemerge from bankruptcy proceedings as a reorganized entity. Using 836 bankruptcy cases filed under Chapter 11 of the United States Bankruptcy Code from 1989 through 2016, we show that firms that undergo CEO turnover are significantly more likely to emerge from Chapter 11 proceedings. We conduct further analyses to examine the potential mechanisms through which CEO turnover is linked to a firm's chance of emergence. Consistent with the perspective that CEO turnover constitutes an observable event that can signal creditor support, we find that CEO turnover in bankrupt firms is positively associated with debtor‐in‐possession financing. Additionally, there is a significant increase in managerial quality post‐turnover. Further, we document that the predictive power of CEO turnover is stronger in bankruptcy cases with greater uncertainty, such as in free‐fall bankruptcies, where there is less preexisting agreement between the firm and its creditors. Overall, our findings provide valuable insight into external investors and stakeholder groups, whose interests are significantly impacted by corporate bankruptcies.

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“…Thus, the revelation of fraud provides stakeholders with an opportunity to reassess firm risk and adjust their behavior. Despite the significance and prevalence of corporate fraud (Beasley et al , 2010), only a few studies have examined how stakeholders respond to corporate fraud (Ghannam et al , 2019). This study attempts to fill in the void by examining how auditors respond to the revelation of corporate fraud in their audit contracting decisions.…”

Section: Introductionmentioning

confidence: 99%

Auditors’ response to corporate fraud: evidence from audit fees and auditor turnover

Lee

2021

MAJ

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Purpose This study aims to examine how auditors respond to the revelation of clients’ corporate fraud. Design/methodology/approach This study uses an ordinary least squares estimation to examine how audit fees and audit turnover change after the revelation of corporate fraud. Findings After a client discloses fraudulent activities, average audit fees significantly increase due to an increase in audit hours, rather than in audit premiums. Both new and continuing auditors increase audit hours for fraud firms, but only new auditors charge higher audit fees for the increased effort. In addition, when auditors are designated by regulators following the revelation of fraud, audit fees and premiums increase, but audit hours do not. Finally, auditor turnover becomes more frequent after the revelation of fraud. Overall, the findings suggest that auditors update their assessment of audit risks after fraud revelation and, thus, adjust their audit pricing and client acceptance decisions. Practical implications The study provides regulators and audit practitioners with insights into how to audit contract characteristics and regulatory intervention (auditor designations) affect auditors’ response to increased audit risks. Originality/value The study contributes to the auditing literature and practice by providing evidence on how auditors respond to the revelation of fraudulent activities and how their response depends on their ability to determine audit fees. Moreover, we provide novel evidence that audit contracting characteristics and regulatory requirements result in different responses of auditors toward changes in audit risks.

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Are Qualified and Experienced Outside Directors Willing to Join Fraudulent Firms and If So, Why?

Cited by 26 publications

References 58 publications

From tokens to key players: The influence of board gender and ethnic diversity on corporate discrimination lawsuits

From tokens to key players: The influence of board gender and ethnic diversity on corporate discrimination lawsuits

CEO turnover and bankrupt firms’ emergence

Auditors’ response to corporate fraud: evidence from audit fees and auditor turnover

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