Abstract

http://ssrn.com/abstract=2138348
 


 



The Effect of Board Independence and Non-Audit Services 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 29, 2012


Abstract:     
Reforms surrounding the Sarbanes Oxley Act of 2002 mandated increases in board and audit committee independence and banned most non-audit services. We exploit these exogenous shocks to examine whether increased board independence and decreased non-audit fees reduce financial reporting fraud. Comparing firms forced to comply with the reforms to those 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, we find that banning non-audit services had no effect in reducing the fraud rate.

Number of Pages in PDF File: 47

Keywords: Sarbanes-Oxley Act, SOX, Corporate Governance, Fraud

JEL Classification: K22, M41, M48

working papers series


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Date posted: August 29, 2012 ; Last revised: August 29, 2013

Suggested Citation

Donelson, Dain C. and McInnis, John M. and Mergenthaler, Richard, The Effect of Board Independence and Non-Audit Services on Financial Reporting Fraud (August 29, 2012). 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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