Sustainable Investment and Corporate Governance Working Papers, Sustainable Investment Research Platform
No 2009/9:
Personal Character and Firm Performance. The Economic Implications of Having Fraudulent Board Members
Eli Amir ()
, Juha-Pekka Kallunki ()
and Henrik Nilsson ()
Abstract: Unique proprietary data on Swedish board members reveal
that a non-trivial proportion of board members in Swedish listed firms have
been convicted of serious crimes. Analyzing the data shows that board
members with personal fraudulent behavior are more likely to be males than
females. We also find that the greater the proportion of fraudulent board
members, the lower is the profitability and the higher are the earnings
(and cash flows) volatility of the firm. However, the negative effect of
fraudulent behavior on profitability is mitigated when fraudulent board
members have a larger stake in the firm’s equity. Finally, we find that the
earnings of firms with more fraudulent board members are lower and less
value-relevant. Given the strong legal enforcement in Sweden, our results
raise serious concerns about the effects of board members’ personal
fraudulent behavior on firm performance and risk-taking in other countries,
particularly the United States and the United Kingdom.
Keywords: Fraudulent behavior; Fraud; Crimes; Convicted board members; Corporate governance; Profitability; Earnings volatility; (follow links to similar papers)
58 pages, October 27, 2009
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