Corporate Governance and Accounting Scandals

Posted: 1 Nov 2004

See all articles by Anup Agrawal

Anup Agrawal

University of Alabama - Culverhouse College of Commerce & Business Administration

Sahiba Chadha

University of Alabama - Culverhouse College of Commerce & Business Administration

Multiple version iconThere are 2 versions of this paper

Abstract

This paper empirically examines whether certain corporate governance mechanisms are related to the probability of a company restating its earnings. We examine a sample of 159 U.S. public companies that restated earnings and an industry-size matched sample of control firms. We have assembled a novel, hand-collected dataset measuring corporate governance characteristics of these 318 firms. We find that several key governance characteristics are unrelated to the probability of a company restating earnings. These include the independence of boards and audit committees, and the provision of non-audit services by outside auditors. We find that the probability of restatement is lower in companies whose boards or audit committees have an independent director with financial expertise; it is higher in companies where the CEO belongs to the founding family. These relations are statistically significant, large in magnitude, and robust to alternative specifications. Our findings are consistent with the idea that independent directors with financial expertise are valuable in providing oversight of a firm's financial reporting practices.

Keywords: Corporate governance, Accounting scandals, Earnings restatements, Financial scandals, Sarbanes-Oxley Act, Boards of directors

JEL Classification: G34, G38, K22, L51, M41, M49

Suggested Citation

Agrawal, Anup and Chadha, Sahiba, Corporate Governance and Accounting Scandals. Journal of Law and Economics, October 2005. Available at SSRN: https://ssrn.com/abstract=611184

Anup Agrawal (Contact Author)

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
EFLS, Box 870224
Tuscaloosa, AL 35487-0224
United States
205-348-8970 (Phone)
205-348-0590 (Fax)

HOME PAGE: http://aagrawal.people.ua.edu/

Sahiba Chadha

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States
205-348-8966 (Phone)
205-348-0590 (Fax)

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