Does director capital influence board turnover after an incident of fraud? Evidence from Italian listed companies

Giuseppe D’Onza () and Alessandra Rigolini
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Giuseppe D’Onza: University of Pisa
Alessandra Rigolini: University of Pisa

Journal of Management & Governance, 2017, vol. 21, issue 4, No 8, 993-1022

Abstract: Abstract Studies in U.S. have found that that director capital influences turnover within the board after an incident of fraud. We analyse whether there is a relationship between the probability of non-executive director turnover in Italian listed firms in which fraud has occurred and each director’s level of: (1) general business knowledge, (2) industry knowledge, and (3) relational capital. Our results suggest that non-executive director departure can be explained as a result of decisions by companies to clean their house of directors with lower expertise, industry knowledge and relational capital. These findings indicate that firms encourage the departure of these non-executive directors to signal to their stakeholders that they want to repair legitimacy and want to enhance the monitoring and resource provider tasks of the board. Indeed, in Italy, director turnover is more marked when the fraud visibility is greater. Furthermore, our study findings indicate that the cleaning house strategy is not influenced by the ownership structure and identity.

Keywords: Board turnover; Company fraud; Director capital; Legitimacy; Reputation (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10997-016-9372-2

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