Consequences of Restatements for Outside Directors

34 Pages Posted: 13 Jun 2018

Date Written: May 30, 2017

Abstract

A significant literature examines the consequences of restatements on outside directors and finds that restatements are associated with outside directors losing seats on the boards of the restating firm and on the boards of other firms. Directors’ losses of board seats are positively associated with the restatement severity and intention but are negatively related to the strength of directors’ external networks. This evidence suggests that directors’ reputations are damaged by involvement with a restatement. I identify two future research opportunities: First, may a director preserve their reputation by departing a board before a restatement is disclosed? Second, does the strength of a director’s network affect the likelihood of a restatement or the director’s attainment of subsequent board seats? Research into this area provides important evidence regarding whether market forces sufficiently discipline those individuals responsible for corporate governance.

Keywords: Restatements, Board of Directors, Labor Market, Corporate Governance

JEL Classification: M41

Suggested Citation

Street, Daniel, Consequences of Restatements for Outside Directors (May 30, 2017). Available at SSRN: https://ssrn.com/abstract=3186666 or http://dx.doi.org/10.2139/ssrn.3186666

Daniel Street (Contact Author)

University of Alabama ( email )

101 Paul W. Bryant Dr.
Box 870382
Tuscaloosa, AL 35487
United States

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