TY - JOUR
T1 - The effect of governance reforms on financial reporting fraud
AU - Donelson, Dain C.
AU - McInnis, John
AU - Mergenthaler, Richard D.
N1 - Funding Information:
of Oregon, and the University of Texas at Austin for helpful comments and suggestions. We thank the McCombs School of Business at the University of Texas and the Tippie College of Business at the University of Iowa for generous financial support.
Publisher Copyright:
© 2016 D. C. Donelson, J. McInnis, R. D. Mergenthaler.
PY - 2016
Y1 - 2016
N2 - 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.
AB - 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.
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U2 - 10.1561/108.00000005
DO - 10.1561/108.00000005
M3 - Article
AN - SCOPUS:85037702801
VL - 1
SP - 235
EP - 274
JO - Journal of Law, Finance, and Accounting
JF - Journal of Law, Finance, and Accounting
SN - 2380-5005
IS - 2
ER -