The Effect of Governance Reforms on Financial Reporting Fraud

Dain Donelson (ddonelson@wisc.edu), John McInnis and Richard D. Mergenthaler

Journal of Law, Finance, and Accounting, 2016, vol. 1, issue 2, 235-274

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.

Keywords: Fraud; sarbanes-oxley; corporate governance; board independence (search for similar items in EconPapers)
JEL-codes: K22 K41 M41 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:now:jnllfa:108.00000005

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