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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.
    2. Palmrose, Zoe-Vonna & Richardson, Vernon J. & Scholz, Susan, 2004. "Determinants of market reactions to restatement announcements," Journal of Accounting and Economics, Elsevier, vol. 37(1), pages 59-89, February.
    3. 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.
    4. 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.
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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, Institute of Labor Economics (IZA).
    2. Ralf Winkler & Maximilian Behrmann, 2019. "Aufsichtsratsvergütung und Überwachungseffektivität: Empirische Befunde für börsennotierte Gesellschaften in Deutschland [Supervisory Board Compensation and Monitoring Effectiveness: Evidence from ," Schmalenbach Journal of Business Research, Springer, vol. 71(3), pages 381-414, November.

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    More about this item

    JEL classification:

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

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