Tainted Executives as Outside Directors

59 Pages Posted: 24 Jun 2017 Last revised: 16 Oct 2021

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 1, 2019

Abstract

We examine outside board appointments of executives allegedly involved in governance failures—“tainted” executives—to shed light on appointing firms’ underlying motivations. Firms with greater advising needs are more likely to appoint tainted executives to their boards than other firms are. Tainted appointees are less likely to be placed on the nominating and governance committees than non-tainted appointees. Tainted appointees have similar or better skill sets compared to non-tainted appointees, and both groups add to boards’ overall skill sets. Firms that appoint tainted executives to their boards display an improvement in operating performance and a lower litigation likelihood in the post-appointment period relative to the preappointment period and relative to a matched control sample. We do not find evidence of poor monitoring outcomes for these firms. Overall, our evidence suggests that firms’ advising needs, not a conspicuous attempt to weaken monitoring, drive the appointment of tainted executives to boards.

Keywords: director appointments, 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 1, 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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