Abstract

http://ssrn.com/abstract=2138348
 


 



The Effect of Governance Reforms on Financial Reporting Fraud


Dain C. Donelson


University of Texas at Austin - McCombs School of Business

John M. McInnis


University of Texas at Austin - Department of Accounting

Richard Mergenthaler Jr.


University of Iowa - Henry B. Tippie College of Business

August 2015

Journal of Law, Finance & Accounting, Forthcoming

Abstract:     
In response to financial reporting scandals, Congress and the securities exchanges mandated increases in board and audit committee independence and banned most non-audit services. We exploit these exogenous shocks to examine whether these governance reforms reduced financial reporting fraud. Comparing firms forced to comply with the reforms to firms already in compliance, we find that mandated increases in overall board independence significantly reduced the rate of fraud, while mandating a fully independent audit committee had a weaker effect. Further, banning non-audit services did not reduce the incidence of fraud.

Number of Pages in PDF File: 66

Keywords: Fraud, Sarbanes-Oxley, Corporate Governance, Board Independence

JEL Classification: K22, K41, M41


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Date posted: August 29, 2012 ; Last revised: February 15, 2016

Suggested Citation

Donelson, Dain C. and McInnis, John M. and Mergenthaler, Richard, The Effect of Governance Reforms on Financial Reporting Fraud (August 2015). Journal of Law, Finance & Accounting, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2138348 or http://dx.doi.org/10.2139/ssrn.2138348

Contact Information

Dain C. Donelson
University of Texas at Austin - McCombs School of Business ( email )
Austin, TX 78712
United States
512-232-3733 (Phone)

John M. McInnis
University of Texas at Austin - Department of Accounting ( email )
Austin, TX 78712
United States
512-232-6791 (Phone)

Richard Dean Mergenthaler Jr. (Contact Author)
University of Iowa - Henry B. Tippie College of Business ( email )
108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-0848 (Phone)
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