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Whistleblowers on the Board? The Role of Independent Directors in Cartel Prosecutions

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  • Murillo Campello
  • Daniel Ferrés
  • Gaizka Ormazabal

Abstract

Stock market reactions to news of cartel prosecutions are muted when indicted firms have a high proportion of independent directors serving on their boards. This finding is robust to self-selection and is more pronounced when those directors hold more outside directorships and have fewer stock options — when they have fewer economic ties to the indicted firms. Results are stronger when independent directors’ appointments were attributable to SOX, preceded the CEO’s appointment, or followed class action suits — when they have fewer direct ties to indicted CEOs. Independent directors serving on indicted firms are penalized by losing board seats and vote support across their directorships in other firms. Moreover, firms with more independent directors are more likely to cooperate with antitrust authorities through leniency programs and to dismiss CEOs after cartel indictments. Our results show that cartel prosecution imposes significant personal costs onto independent directors and that they take actions to reduce those costs. Understanding these incentives is key for antitrust authorities in designing strategies for cartel prosecution.

Suggested Citation

  • Murillo Campello & Daniel Ferrés & Gaizka Ormazabal, 2017. "Whistleblowers on the Board? The Role of Independent Directors in Cartel Prosecutions," Documentos de Trabajo/Working Papers 1708, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo..
  • Handle: RePEc:mnt:wpaper:1708
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    References listed on IDEAS

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    Cited by:

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    2. Amore, Mario Daniele & Marzano, Riccardo, 2019. "Family Ownership and Antitrust Violations," CEPR Discussion Papers 14018, C.E.P.R. Discussion Papers.
    3. Shweta Mehrotra & R. K. Mishra & V. Srikanth & Govind Prasad Tiwari & E. V. Mahesh Kumar, 2020. "State of Whistleblowing Research: A Thematic Analysis," FIIB Business Review, , vol. 9(2), pages 133-148, June.
    4. Ferrés, Daniel & Marcet, Francisco, 2021. "Corporate social responsibility and corporate misconduct," Journal of Banking & Finance, Elsevier, vol. 127(C).
    5. Xiaomeng Charlene Chen & Ka Wai Choi & Sue Wright & Hai Wu, 2023. "The effectiveness of sanctions on disclosure regulation: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(4), pages 3841-3872, December.
    6. Lee, Hwaryung, 2016. "The Retention of Underperforming CEOs and the Implications on Collusion – Controlling Management and Preventing Collusion by Strengthening the Independence of the Board," KDI Focus 77, Korea Development Institute (KDI).

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    More about this item

    Keywords

    Cartel Prosecution; Antitrust Policy; Leniency Programs; Independent Directors; Reputational Costs; Heckman Selection Test.;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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