Tainted Executives as Outside Directors

44 Pages Posted: 24 Jun 2017 Last revised: 17 Feb 2019

See all articles by Leah Baer

Leah Baer

University of Missouri at Columbia - School of Accountancy

Yonca Ertimur

University of Colorado at Boulder - Department of Accounting

Jingjing Zhang

McGill University - Desautels Faculty of Management

Date Written: February 2019

Abstract

We find that executives allegedly involved in governance failures (“tainted” executives) continue to gain outside directorships. Firms with greater advising needs tend to appoint tainted executives to their boards. Relative to non-tainted executives, tainted executives are less (more) likely to join board committees whose primary function is monitoring (advising). Appointing firms subsequently experience higher sales growth and lower incidence of litigation. Overall, evidence suggests that firms appoint tainted executives to boards for these individuals’ advising reputation and not in a conspicuous attempt to weaken monitoring. Our results highlight the limitations of ex-post settling up in the director labor market.

Keywords: board of directors, director labor market, class action lawsuits, corporate governance

JEL Classification: G34, K22, M41

Suggested Citation

Baer, Leah and Ertimur, Yonca and Zhang, Jingjing, Tainted Executives as Outside Directors (February 2019). AAA 2018 Management Accounting Section (MAS) Meeting. Available at SSRN: https://ssrn.com/abstract=2991803 or http://dx.doi.org/10.2139/ssrn.2991803

Leah Baer

University of Missouri at Columbia - School of Accountancy ( email )

College of Business
Columbia, MO 65211
United States

Yonca Ertimur (Contact Author)

University of Colorado at Boulder - Department of Accounting ( email )

419 UCB
Boulder, CO 80309-0419
United States

Jingjing Zhang

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5
Canada

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