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The impact of corporate fraud on director-interlocked firms: Evidence from bank loans
Lai,Tat kei1; Lei,Adrian C.H.2; Song,Frank M.3
2019
Source PublicationJournal of Business Finance and Accounting
ISSN14685957 0306686X
Volume46Issue:1-2Pages:32-67
AbstractWe examine the impact of corporate fraud committed by one firm (the “fraudulent firm”) on other firms with interlocking directors (the “interlocked firms”), focusing on the debtholder side. We argue that the revelation of a fraudulent firm's fraud can damage the reputation of the interlocked firms because corporate governance can propagate via director interlocks. Empirically, we find that the interlocked firms' cost of debt is higher and the loan covenants become stricter after the fraud cases of the fraudulent firms are revealed. Consistent with the corporate governance propagation explanation, our results are weaker (stronger) for interlocked firms that have better (worse) pre-event corporate governance standards. Our findings suggest that corporate fraud of fraudulent firms can affect other firms through director-interlocks beyond shareholder value.
Keywordagency conflicts corporate fraud corporate governance cost of debt director appointments director interlocks earnings management loan covenants reputation spillover
DOI10.1111/jbfa.12362
URLView the original
Language英语
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Cited Times [WOS]:1   [WOS Record]     [Related Records in WOS]
Document TypeJournal article
CollectionDEPARTMENT OF FINANCE AND BUSINESS ECONOMICS
Affiliation1.Department of Economics & Quantitative Methods IÈSEG School of Management (LEM-CNRS 9221),,France
2.Faculty of Business Administration University of Macau,,Macao
3.Economics and Management School Wuhan University,,China
Recommended Citation
GB/T 7714
Lai,Tat kei,Lei,Adrian C.H.,Song,Frank M.. The impact of corporate fraud on director-interlocked firms: Evidence from bank loans[J]. Journal of Business Finance and Accounting,2019,46(1-2):32-67.
APA Lai,Tat kei,Lei,Adrian C.H.,&Song,Frank M..(2019).The impact of corporate fraud on director-interlocked firms: Evidence from bank loans.Journal of Business Finance and Accounting,46(1-2),32-67.
MLA Lai,Tat kei,et al."The impact of corporate fraud on director-interlocked firms: Evidence from bank loans".Journal of Business Finance and Accounting 46.1-2(2019):32-67.
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