Labor market consequences of accounting fraud

Show full item record

Title: Labor market consequences of accounting fraud
Author: Hoi, Chun-Keung; Robin, Ashok
Abstract: Purpose – This paper aims to examine the research questions: Do executive and non-executive directors face similar labor market penalties upon revelation of accounting fraud? Are all executive directors treated by markets as a homogenous group? Or, do executive directors who are top managers face stiffer penalties than other executive directors? Design/methodology/approach – Board membership of incumbent directors in US firms accused of accounting fraud are tracked for three years after the revelation. Two labor market consequences/penalties are considered. Probability of losing internal, own firm board seat is the likelihood that incumbent directors leave the accused firm’s board upon accounting fraud revelation. The likelihood of losing at least one external board seat (outside directorship) is also examined. Both univariate tests and multivariate LOGIT regressions are used to conduct the analysis. Findings – Compared to non-executive directors, executive directors are more than twice as likely to lose own firm board seat and at least five times as likely to lose at least one outside directorship. Moreover, all executives, top or otherwise, appear to face similar tough penalties. Research limitation/implications – Accounting fraud is a rare event; this may limit the generality of the findings. Results obtained from a US sample may be applicable to countries with well-developed capital and labor markets. Results imply that the labor market for directors serves a vital function in the US-style corporate governance environment; labor market discipline provides at least some incentives for board members, including non-employee directors and other executive directors, to perform their fiduciary duties. Originality/value – This is the first study that utilizes a single corporate event to analyze the operation of the labor market across different categories of directors. Also, while studies have examined penalties on top executives there is no evidence that other executives who also serve on the board of the accused firms suffer labor market penalties.
Record URI: http://hdl.handle.net/1850/12560
Date: 2010-01-01

Files in this item

Files Size Format View
CHoi-ARobinArticle03-16-2009.pdf 106.9Kb PDF View/Open

The following license files are associated with this item:

This item appears in the following Collection(s)

Show full item record

Search RIT DML


Advanced Search

Browse