Are Corporate General Counsels Effective Monitors - Evidence from Stock Price Crash Risk?

50 Pages Posted: 31 Oct 2018

See all articles by Md Al Mamun

Md Al Mamun

La Trobe University - Department of Economics and Finance

Balasingham Balachandran

La Trobe University - School of Economics and Finance; 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: July 31, 2018

Abstract

Motivated by recent interests and contrasting evidence on the role of corporate general counsels (CGCs) in financial reporting practices, we examine the effect of the presence of CGCs in the top management on stock price crash risk. We find that firms with CGCs in the top management have lower stock price crash risk than others, indicating support for the monitoring role of CGCs. Our results hold addressing for endogeneity concerns and omitted variable bias. Further, we show that CGCs are more effective in mitigating crash risk when they connected to the board. Moreover, we show that the ability of CGCs in reducing overinvestment is a channel through which CGCs mitigate crash risk. Finally, consistent with the idea that first time appointment of CGCs in firms with highly opaque financial reporting are more likely to release bad news, we find that the first-time appointment of CGC is associated with higher crash risk.

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

JEL Classification: M41, M51, G34, G14

Suggested Citation

Al Mamun, Md and Balachandran, Balasingham and Duong, Huu Nhan and Gul, Ferdinand A, Are Corporate General Counsels Effective Monitors - Evidence from Stock Price Crash Risk? (July 31, 2018). 9th Conference on Financial Markets and Corporate Governance (FMCG) 2018. Available at SSRN: https://ssrn.com/abstract=3270178 or http://dx.doi.org/10.2139/ssrn.3270178

Md Al Mamun

La Trobe University - Department of Economics and Finance ( email )

Melbourne, 3086

Balasingham Balachandran (Contact Author)

La Trobe University - School of Economics and Finance ( email )

La Trobe University
Bundoora, Vic, 3086
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Huu Nhan Duong

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Ferdinand A Gul

Deakin University ( email )

Australia

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