Internal Governance Mechanisms and Corporate Misconduct

This study aims to provide new evidence linking internal corporate governance mechanisms and corporate misconduct, using a sample of 2,844 public US companies during the period 2007-2019. The results reveal that optimal size and diverse boards, including well-functioning audit committees, are negatively related to corporate violations. In contrast, we show that board members’ independence, activity, and ownership are positively related to a firm’s fraudulent activities. Therefore, not all internal governance mechanisms are related to lower corporate misconduct. Moreover, we show that some internal governance mechanisms, such as the share of female board members, mitigate only certain types of corporate misconduct.

Keywords: corporate misconduct, internal governance mechanisms, board of directors, committees ownership

JEL Classification: G01, G34, G38, K22, L51, M41

Suggested Citation: Suggested Citation

Eugster, Nicolas and Kowalewski, Oskar and Spiewanowski, Piotr, Internal Governance Mechanisms and Corporate Misconduct (September 6, 2022). IESEG Working Paper Series 2022-ACF-05, Available at SSRN: https://ssrn.com/abstract=4211747 or http://dx.doi.org/10.2139/ssrn.4211747