Does personal liability deter individuals from serving as independent directors?

Naaraayanan, S Lakshmi; Nielsen, Kasper Meisner

doi:10.1016/j.jfineco.2021.01.003

Cited by 28 publications

(4 citation statements)

References 61 publications

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“…Prior studies document that reputational risk associated with litigation is a significant concern for directors (Brochet & Srinivasan, 2014; Fich & Shivdasani, 2007; Naaraayanan & Nielsen, 2021). Directors can resign from or decline to serve on a board if management integrity concerns are apparent (Beasley et al, 2009).…”

Section: Resultsmentioning

confidence: 99%

“…To shed light on the direction of causality, we examine the evidence for this alternative explanation. Our analyses are based on the theoretical argument that an AFE's decision to join a firm is driven by reputational incentives, as proxied by litigation risks and firm reputation (Brochet & Srinivasan, 2014; Donelson et al, 2022; Fama & Jensen, 1983; Fich & Shivdasani, 2007; Knyazeva et al, 2013; Masulis & Mobbs, 2014; Naaraayanan & Nielsen, 2021). We argue that if AFEs do indeed avoid firms with powerful CEOs, the extent of the avoidance should vary because AFEs have stronger incentives to provide their services to more reputable firms or to firms with lower litigation risk even in the presence of powerful CEOs.…”

Section: Introductionmentioning

confidence: 99%

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CEO power and the strategic selection of accounting financial experts to the audit committee

Bedford

Ghannam

Grosse

et al. 2023

Contemporary Accting Res

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We examine the role of CEO power in the appointment of accounting financial experts (AFEs) to firm audit committees. Our results show that firms with powerful CEOs have a lower likelihood of appointing AFEs to their audit committees. Additionally, effective AFEs—those characterized by experience, high status, and social independence from the CEO—are less likely to be appointed in firms with powerful CEOs. In the presence of powerful CEOs, effective AFEs are also less likely to be designated audit committee chair. The absence of effective AFEs is associated with the use of accounting discretion by powerful CEOs to meet or just beat analyst earnings forecasts. We find no evidence that AFEs choose to avoid serving on the boards of firms with powerful CEOs. Our findings are consistent with powerful CEOs influencing board appointments post‐SOX through informal channels, including through their social ties with nominating committees. Our results suggest that current regulations prohibiting CEO involvement in the director nomination process and specifying who qualifies as a financial expert may be insufficient to ensure audit committee effectiveness and financial reporting quality.This article is protected by copyright. All rights reserved.

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Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

CEO power and the strategic selection of accounting financial experts to the audit committee

Bedford

Ghannam

Grosse

et al. 2023

Contemporary Accting Res

View full text Add to dashboard Cite

show abstract

“…Our main data source is Prowess, a database maintained by the Centre for Monitoring Economy (CMIE). This data set has been used by a number of prior studies on Indian firms, including Bertrand, Mehta, and Mullainathan (2002), Gopalan, Nanda, and Seru (2007), Mookherjee, Visaria, and von Lilienfeld-Toal (2012), Naaraayanan and Nielsen (2021), and Gopalan, Mukherjee, and Singh (2016). Prowess contains annual financial data sourced from balance sheets and income statements for about 34,000 publicly listed and private Indian firms.…”

Section: Data and Summary Statisticsmentioning

confidence: 99%

Business Group Spillovers

Naaraayanan

Wolfenzon

2023

SSRN Journal

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“…Following this literature, we take advantage of our rich database and test whether the borrowings of more transparent firms exhibit greater exposure to the regional financial cycle. We exploit firm heterogeneity by dividing firms into two groups based on several measures of information transparency and monitoring costs (Beck et al, 2018;Naaraayanan and Nielsen, 2021). We classify a firm as more transparent if it is larger in size and have higher collateral (based on the above-median values of the respective distributions of all the firms in that particular year), if it is audited, and have multiple banking relationships.…”

Section: Transmission Channel Of Foreign Vs Domestic Banksmentioning

confidence: 99%