Whistleblowers on the Board? The Role of Independent Directors in Cartel Prosecutions

Gaizka Ormazabal, Murillo Campello and Ferrés, Daniel

No 12143, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Stock market reactions to news of cartel prosecutions are muted when indicted rms have a high proportion of independent directors on their boards. This nding is robust to self-selection and is pronounced when independent directors hold more outside directorships and fewer stock options -when those directors have fewer economic ties to indicted rms. Results are even stronger when independent directors' appointments were attributable to SOX, preceded their CEO's own appointment, or followed class action suits|when directors have fewer ties to indicted CEOs. Independent directors serving on indicted rms are penalized by losing board seats and vote support in other firms. Firms with more independent directors are more likely to cooperate with antitrust authorities through leniency programs. They are also more likely to dismiss scandal-laden CEOs after public indictments. Our results show that cartel prosecution imposes signi cant personal costs onto independent directors and that they take actions to mitigate those costs. We argue that understanding these incentive-compatible dynamics is key in designing strategies for cartel detection and prosecution.

Keywords: Cartel prosecution; Leniency programs; Independent directors; Antitrust policy (search for similar items in EconPapers)
JEL-codes: G30 K21 L41 (search for similar items in EconPapers)
Date: 2017-07
New Economics Papers: this item is included in nep-cfn, nep-com and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://cepr.org/publications/DP12143 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:12143

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP12143
orders@cepr.org

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by (repec@cepr.org).