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Corporate Board Turnover and Securities Fraud Litigation: Some new evidence from case outcomes

Author

Listed:
  • Christopher F. Baum

    (Boston College
    DIW Berlin)

  • James G. Bohn

    (Federal Reserve Bank of Boston)

  • Atreya Chakraborty

    (University of Massachusetts-Boston)

Abstract

We examine the relationship between outcomes of securities fraud class action lawsuits (SFCAs) and corporate board turnover rates. Our results indicate the strength of the allegations in lawsuits affects board turnover. The turnover rates for each type of board member: outsiders, insiders, and CEOs are higher when a lawsuit is settled relative to those that are dismissed. Turnover rates of outside directors are more sensitive to the outcome of the SFCA among firms with higher levels of external blockholdings and those with greater institutional ownership. These results support the view that firms act to impose sanctions on those individuals associated with fraudulent activities.

Suggested Citation

  • Christopher F. Baum & James G. Bohn & Atreya Chakraborty, 2007. "Corporate Board Turnover and Securities Fraud Litigation: Some new evidence from case outcomes," Boston College Working Papers in Economics 664, Boston College Department of Economics, revised 31 May 2016.
    • Handle: RePEc:boc:bocoec:664
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    Citations

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    Cited by:

    1. Monica Ramos Montesdeoca & Agustín J. Sánchez Medina & Felix Blázquez Santana, 2019. "Research Topics in Accounting Fraud in the 21st Century: A State of the Art," Sustainability, MDPI, vol. 11(6), pages 1-31, March.
    2. Aharony, Joseph & Liu, Chelsea & Yawson, Alfred, 2015. "Corporate litigation and executive turnover," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 268-292.
    3. Street, Daniel A. & Hermanson, Dana R., 2019. "How do restatements affect outside directors and boards? A review of the literature," Journal of Accounting Literature, Elsevier, vol. 43(C), pages 19-46.
    4. Joseph Simpson & Ana Marcie Sariol, 2019. "Squared Away: Veterans on the Board of Directors," Journal of Business Ethics, Springer, vol. 160(4), pages 1035-1045, December.
    5. Unsal, Omer & Brodmann, Jennifer, 2020. "The impact of employee relations on the reputation of the board of directors and CEO," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 372-388.
    6. Matteo Cotugno & Antonio D'Amato & Angela Gallo & Valeria Stefanelli, 2021. "Do supervisory enforcement actions affect board composition?," Corporate Governance: An International Review, Wiley Blackwell, vol. 29(1), pages 22-44, January.
    7. Liu, Chelsea & Aharony, Joseph & Richardson, Grant & Yawson, Alfred, 2016. "Corporate litigation and changes in CEO reputation: Guidance from U.S. Federal Court lawsuits," Journal of Contemporary Accounting and Economics, Elsevier, vol. 12(1), pages 15-34.

    More about this item

    Keywords

    Securities fraud class actions; board turnover; corporate governance;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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