Are Corporate General Counsels in Top Management Effective Monitors? Evidence from Stock Price Crash Risk

Al Mamun, Md; Balachandran, Balasingham; Duong, Huu Nhan; Gul, Ferdinand A

doi:10.2139/ssrn.3270178

Are Corporate General Counsels in Top Management Effective Monitors? Evidence from Stock Price Crash Risk

European Accounting Review (Forthcoming)

50 Pages Posted: 31 Oct 2018 Last revised: 8 May 2020

See all articles by Md Al Mamun

Md Al Mamun

La Trobe University - Department of Economics and Finance; Financial Research Network (FIRN)

Balasingham Balachandran

Dept of Economics, Finance and Marketing, La Trobe Business School, La Trobe University; Financial Research Network (FIRN)

Huu Nhan Duong

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Ferdinand A Gul

Deakin University

Date Written: April 27, 2020

Abstract

We find that firms with a top management counsel (TMC) have lower stock price crash risk than other firms. We further show that firms with a TMC issue more negative relative to positive earnings guidance and use more negative relative to positive words in their annual report filings, compared to firms without a TMC. TMCs are more effective in mitigating crash risk when they serve on the board. Our findings support the monitoring role of TMCs in mitigating bad news hoarding, which, in turn, contributes to the reduction in crash risk.

Keywords: Corporate general counsel, Discretionary accruals, Opaque financial reports, Stock price crash risk

JEL Classification: M41, M51, G34, G14

Suggested Citation: Suggested Citation

Al Mamun, Md and Balachandran, Balasingham and Duong, Huu Nhan and Gul, Ferdinand A, Are Corporate General Counsels in Top Management Effective Monitors? Evidence from Stock Price Crash Risk (April 27, 2020). European Accounting Review (Forthcoming), Available at SSRN: https://ssrn.com/abstract=3270178 or http://dx.doi.org/10.2139/ssrn.3270178