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Financial Analysts Journal
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Accusations of Corporate Fraud
Dalia Marciukaityte, Samuel H. Szewczyk, Hatice Uzun, and Raj Varma
Using a sample of companies charged with government, financial reporting, or stakeholder fraudor regulatory violation in the United States during the 1978–2001 period, this study found thatafter the accusation of fraud, companies increased the proportion of outsider directors on their boardsof directors and on the monitoring committees of the boards. Furthermore, the results showcomparable long-run stock price and operating performance between companies charged with fraud
and a matching sample of companies not accused of fraud. Collectively, these results suggest thatimprovements in internal control systems following accusations of fraud help repair a company’s
damaged reputation and reinstate confidence in the company.
he commission of corporate fraud can berightly ascribed to a failure of the company’sinternal control systems, which areestablished and structured to detect andrectify deviations costly to the interests of the company’sshareholders. Jensen (1993) pointed out that“problems with corporate control systems start withthe board of directors” because the board stands atthe “apex” of the system and has “final responsibilityfor the functioning of the firm” (p. 862).Several studies have found that the compositionof a company’s board of directors influencesthe effectiveness of the company’s internal controlsystem. For example, Weisbach (1988) determinethat the likelihood of a management change after aperiod of poor corporate performance is positivelyrelated to the proportion of outsiders on the boardof directors. Brickley and James (1987) documentedan inverse relationship between managerial perquisite(“perk”) consumption and the percentage ofoutsiders on the board. With regard to corporatefraud, Dechow, Sloan, and Sweeney (1996) documentedthat companies committing financial statementfraud are likely to have boards dominated byinside directors. Beasley (1996) found that the likelihoodof financial statement fraud is negativelyrelated to the presence of independent outsidedirectors on the board. Uzun, Szewczyk, andVarma (2004) reported that a greater proportion ofindependent outside directors on the board is associatedwith a lower likelihood of a broad range ofcorporate frauds. Both Beasley and Uzun et al. presentedevidence that the likelihood of corporatefraud is also negatively influenced by the degree ofindependence in the composition of some of theboard’s oversight committees. The associationfound between corporate fraud and board structuresupports the reasoning underlying the Sarbanes–Oxley Act of 2002 and the NYSE and NASDAQrules requiring companies to have a majority ofindependent directors on their boards.Karpoff and Lott (1993) found that announcementsof actual or alleged frauds are associatedwith significant costs that must be borne by thecompany’s sharehold本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。