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Firm Linkages to Scandals via Directors and Professional Service Firms: Insights from the Backdating Scandal

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  • Jay J. Janney

    (University of Dayton)

  • Steve Gove

    (University of Vermont)

Abstract

We examine market reactions to the stock options backdating scandal in a slightly unusual way, but focusing on firms who were not perceived to have had a backdating concern, but were instead linked to firms who did have a backdating concern. These linkages can be found via board interlocks and the roles those directors perform. In addition we examine the linkages which occur from shared professional services firms, such as auditors and outside legal counsel. That these potential conduits are available is not in question, but rather, do investors perceive the conduits are used to pass along information about backdating stock options? We then ask if affiliation with dominant audit and legal services firms ameliorates or exacerbates those investor market reactions. We find that firms linked to the scandalized firms also face negative reactions, which are worsened when they also are serviced by professional services firms who are themselves are also linked to the managerial practice.

Suggested Citation

  • Jay J. Janney & Steve Gove, 2017. "Firm Linkages to Scandals via Directors and Professional Service Firms: Insights from the Backdating Scandal," Journal of Business Ethics, Springer, vol. 140(1), pages 65-79, January.
    • Handle: RePEc:kap:jbuset:v:140:y:2017:i:1:d:10.1007_s10551-015-2662-9
    DOI: 10.1007/s10551-015-2662-9
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    References listed on IDEAS

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    2. Tao, Qizhi & Li, Haoyu & Wu, Qun & Zhang, Ting & Zhu, Yingjun, 2019. "The dark side of board network centrality: Evidence from merger performance," Journal of Business Research, Elsevier, vol. 104(C), pages 215-232.
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    4. Aaron K. Chatterji & Jiao Luo & Robert C. Seamans, 2021. "Categorical Competition in the Wake of Crisis: Banks vs. Credit Unions," Organization Science, INFORMS, vol. 32(3), pages 568-586, May.
    5. Gupta, Aparna & Owusu, Abena & Zou, Lei, 2021. "Identifying board of director network influence for firm characteristics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 581(C).

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