Internal governance and outside directors' connections to non-director executives

被引:28
作者
Hoitash, Udi [1 ]
Mkrtchyan, Anahit [2 ]
机构
[1] Northeastern Univ, DAmore McKim Sch Business, Boston, MA 02115 USA
[2] Univ Calgary, Haskayne Sch Business, Calgary, AB T2N 1N4, Canada
关键词
Board monitoring; Internal governance; Information asymmetry; Financial reporting manipulation; Social networks; CONTROL MATERIAL WEAKNESSES; REAL EARNINGS MANAGEMENT; INDEPENDENT DIRECTORS; CORPORATE GOVERNANCE; INDUSTRY EXPERTISE; BOARD CONNECTIONS; SMALL WORLD; NETWORKS; CEOS; IRREGULARITIES;
D O I
10.1016/j.jacceco.2021.101436
中图分类号
F8 [财政、金融];
学科分类号
0202 ;
摘要
The monitoring effectiveness of outside directors is curtailed by information asymmetry between boards and management. Connections between outside directors and executives who do not serve on the board (internal ties) may help overcome this challenge by facilitating information sharing between the connected parties. Internal ties can also empower connected executives to withstand pressure from CEOs to take actions that might endanger their reputation in the long term. Alternatively, internal ties may entrench executives by insulating connected executives from adverse outcomes. Consistent with the former, we find that earnings restatements, class-action litigations, and real earnings management decrease when directors are connected with executives responsible for these areas. Connected boards also make better decisions related to CEO turnover, CEO succession and acquisitions. Overall, our results show that internal ties are associated with improved internal governance, thereby suggesting that boards may benefit from forging stronger relationships with non-director executives. 0 2021 Elsevier B.V. All rights reserved.
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页数:34
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