The effect of governance reforms on financial reporting fraud

Dain C. Donelson, John McInnis, Richard D. Mergenthaler

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

In response to financial reporting scandals, Congress and the securities exchanges mandated increases in board and audit committee independence and banned most non-audit services. We exploit these exogenous shocks to examine whether these governance reforms reduced financial reporting fraud. Comparing firms forced to comply with the reforms to firms already in compliance, we find that mandated increases in overall board independence significantly reduced the rate of fraud, while mandating a fully independent audit committee had a weaker effect. Further, banning non-audit services did not reduce the incidence of fraud.

Original languageEnglish (US)
Pages (from-to)235-274
Number of pages40
JournalJournal of Law, Finance, and Accounting
Volume1
Issue number2
DOIs
StatePublished - 2016

All Science Journal Classification (ASJC) codes

  • Law
  • Finance
  • Accounting

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