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DO SCANDALS TRIGGER GOVERNANCE CHANGES? EVIDENCE FROM OPTION BACKDATING
Author(s) -
Gupta Atul,
Misra Lalatendu,
Shi Yilun
Publication year - 2018
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12140
Subject(s) - corporate governance , business , accounting , audit committee , officer , audit , stock options , independence (probability theory) , finance , political science , law , statistics , mathematics
We examine whether firms charged with backdating option grants make discernible changes to board structure and activity and whether such changes help recoup value losses from the revelation of option backdating. We find that these firms increased board size, reduced duality, and increased board independence. In addition, the boards and the compensation committees of these firms experienced significant increases in meeting frequency. We also find that firms in the same sectors that had not been identified as backdating option grants experienced similar changes in board activity and some elements of board structure. Additional analysis reveals that increases in board size, chief excutive officer turnover, and the meeting frequency of the audit committee are related to buy‐and‐hold abnormal returns in the postscandal period.