Career Concerns for Revealing Misreporting
Review of Accounting Studies, Forthcoming
52 Pages Posted: 25 Jun 2016 Last revised: 9 Apr 2021
Date Written: June 1, 2021
Abstract
We examine whether revealing misreporting affects the careers of executives and independent
directors. To isolate the effects of revealing misreporting from the underlying malfeasance, we
analyze executives and directors who joined firms after stock option backdating ceased, but who
were in place to determine how the firm would respond to the unfolding backdating crisis.
Overall, these new executives and directors faced career penalties at firms that issued a
backdating restatement relative to those at firms that remained silent despite strong evidence of
backdating having occurred. We conduct a variety of tests to rule out alternative explanations,
and conclude that new executives and directors face career penalties after firms reveal
misreporting.
Keywords: corporate governance, executive turnover, board of directors, director labor market, shareholder voting, financial restatements
JEL Classification: G34, J33, M41, M52, K22
Suggested Citation: Suggested Citation