The impact of corporate fraud on director-interlocked firms: Evidence from bank loans

Tat-kei Lai, Adrian C.H. Lei and Frank Song

Post-Print from HAL

Abstract: We examine the impact of corporate fraud committed by one firm (the "fraudulent firm") on other firms with interlocking directors (the "interlocked firms"), focusing on the debtholder side. We argue that the revelation of a fraudulent firm's fraud can damage the reputation of the interlocked firms because corporate governance can propagate via director interlocks. Empirically, we find that the interlocked firms' cost of debt is higher and the loan covenants become stricter after the fraud cases of the fraudulent firms are revealed. Consistent with the corporate governance propagation explanation, our results are weaker (stronger) for interlocked firms that have better (worse) pre‐event corporate governance standards. Our findings suggest that corporate fraud of fraudulent firms can affect other firms through director‐interlocks beyond shareholder value.

Date: 2019-01
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Published in Journal of business finance & accounting, 2019, 46 (1-2), pp.32-67. ⟨10.1111/jbfa.12362⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: The impact of corporate fraud on director‐interlocked firms: Evidence from bank loans (2019)
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:hal:journl:hal-02108596

DOI: 10.1111/jbfa.12362

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().