Abstract

http://ssrn.com/abstract=1787500
 
 

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CEO Director Connections and Corporate Fraud


N.K. Chidambaran


Fordham University - Schools of Business

Simi Kedia


Rutgers Business School

Nagpurnanand R. Prabhala


University of Maryland - Robert H. Smith School of Business

March 15, 2011

Fordham University Schools of Business Research Paper No. 1787500

Abstract:     
We study the propensity of firms to commit financial fraud using a sample of SEC enforcement actions from 2000 to 2006. Controlling for several rm characteristics as well as year and Fama-French 48-industry effects, we find a significant relation between fraud probability and CEO-board connectedness. The nature of this relation depends on the institutional origin of the connection. While nonprofessional connectedness due to shared educational and non-business antecedents increase fraud probability, professional connections formed due to common prior employment decrease fraud. The positive effects of professional connectedness are pronounced only when individuals share service as executives. The impact of professional-connections persists after the 2002 Sarbanes-Oxley Act while nonprofessional connections lose significance after SOX. Our results suggest that social ties matter and they can have very different effects depending on the institutional context in which the ties are formed. The results suggest heterogeneity in monitoring even within the set of independent directors and support a complementary collaborative board perspective in which directors not only monitor but also provide advice and counsel to CEOs.

Number of Pages in PDF File: 44

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Date posted: March 22, 2011  

Suggested Citation

Chidambaran, N.K. and Kedia, Simi and Prabhala, Nagpurnanand R., CEO Director Connections and Corporate Fraud (March 15, 2011). Fordham University Schools of Business Research Paper No. 1787500. Available at SSRN: http://ssrn.com/abstract=1787500 or http://dx.doi.org/10.2139/ssrn.1787500

Contact Information

N.K. Chidambaran
Fordham University - Schools of Business ( email )
United States

Simi Kedia (Contact Author)
Rutgers Business School ( email )
117 Levin
94 Rockafellar Road
Piscataway, NJ
United States
8484454195 (Phone)
Nagpurnanand R. Prabhala
University of Maryland - Robert H. Smith School of Business ( email )
4427 Van Munching Hall
College Park, MD 20742-1815
United States
301-405-2165 (Phone)
301-405-0359 (Fax)
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