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Do professional ties enhance board seat prospects of independent directors with tainted reputations?

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  • Chen, Chen
  • Dou, Ying
  • Kuang, Yu Flora
  • Naiker, Vic

Abstract

This study shows how professional ties assist directors in gaining future board positions when their reputation is tainted by accounting fraud. We demonstrate that the influence of professional ties is more prominent for directors who are more heavily impacted by fraud. This effect is also stronger when directors share professional ties with key board members in the appointing firms. Additional tests show that appointments of these directors are associated with more favorable market reactions compared to appointments of other tainted directors. We also find that firms’ financial reporting quality improves after appointing professionally connected tainted directors.

Suggested Citation

  • Chen, Chen & Dou, Ying & Kuang, Yu Flora & Naiker, Vic, 2023. "Do professional ties enhance board seat prospects of independent directors with tainted reputations?," Journal of Banking & Finance, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:jbfina:v:154:y:2023:i:c:s037842662300170x
    DOI: 10.1016/j.jbankfin.2023.106972
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    More about this item

    Keywords

    Professional ties; Tainted directors; Accounting fraud; Board director appointments;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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