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The Composition and Compensation of the Board of Directors as Predictors of Corporate Fraud

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  • Joung Yeon Kim
  • Dianne M. Roden
  • Steven R. Cox

Abstract

We test whether the composition and compensation of the board of directors are related to fraudulent corporate behavior. We use Accounting and Auditing Enforcement Releases from 2003 through 2010 to form a sample of 128 firms with violations and compare the characteristics of their boards to a matched sample of 128 control firms. SEC violations are less likely when the board has more women, independent members, and financial experts. Fraud is also less likely when director tenure is shorter and when the CEO is not the chair. Stock and especially stock option compensation are positively associated with SEC violations.

Suggested Citation

  • Joung Yeon Kim & Dianne M. Roden & Steven R. Cox, 2013. "The Composition and Compensation of the Board of Directors as Predictors of Corporate Fraud," Accounting and Finance Research, Sciedu Press, vol. 2(3), pages 142-142, August.
    • Handle: RePEc:jfr:afr111:v:2:y:2013:i:3:p:142
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    References listed on IDEAS

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    1. Deborah S. Archambeault & F. Todd Dezoort & Dana R. Hermanson, 2008. "Audit Committee Incentive Compensation and Accounting Restatements," Contemporary Accounting Research, John Wiley & Sons, vol. 25(4), pages 965-992, December.
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    3. Gopal Krishnan & Linda Parsons, 2008. "Getting to the Bottom Line: An Exploration of Gender and Earnings Quality," Journal of Business Ethics, Springer, vol. 78(1), pages 65-76, March.
    4. Mark S. Beasley & Steven E. Salterio, 2001. "The Relationship between Board Characteristics and Voluntary Improvements in Audit Committee Composition and Experience," Contemporary Accounting Research, John Wiley & Sons, vol. 18(4), pages 539-570, December.
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    Cited by:

    1. Bayly, Nicholas & Breunig, Robert & Wokker, Chris, 2023. "Female Board Representation and Corporate Performance: A Review and New Estimates for Australia," IZA Discussion Papers 16617, IZA Network @ LISER.
    2. Ibrahim El-Sayed Ebaid, 2023. "Board characteristics and the likelihood of financial statements fraud: empirical evidence from an emerging market," Future Business Journal, Springer, vol. 9(1), pages 1-12, December.
    3. Radwan Alkebsee & Ammar Ali Gull & Abdul Ghafoor, 2026. "The Governance Role of Independent Directors' Cash Compensation in Suspect Firms? Evidence From Real Earnings Management," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 31(1), pages 241-269, January.
    4. Ralf Winkler & Maximilian Behrmann, 2019. "Aufsichtsratsvergütung und Überwachungseffektivität: Empirische Befunde für börsennotierte Gesellschaften in Deutschland [Supervisory Board Compensation and Monitoring Effectiveness: Evidence from Listed German Companies]," Schmalenbach Journal of Business Research, Springer, vol. 71(3), pages 381-414, November.

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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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