This study investigates whether firms with fraudulent financial reporting time their earnings announcements strategically and finds that fraudulent firms are more likely to disclose their earnings in the after-market hours during their fraud periods to postpone fraud detection. Cross-sectional tests show that firms with lower visibility are more likely to adopt and benefit from this timing strategy. In addition, fraudulent firms are found to time their conference calls strategically and package their earning news with forecasts to flood the market with (...) information and lower the fraud detection rate. Results also show that unethical managers may benefit from insider trading when their firms use a timing strategy to lower the detection rate. This study sheds light on a potential strategy that unethical managers may adopt to camouflage their fraudulent financial reporting. These results are robust to a variety of settings of samples and model specifications. (shrink)

Institutional investors, policy makers, and researchers have advocated for greater director independence in hopes of improving corporate governance and discouraging unethical behaviors such as corporate frauds, accounting irregularities, and other organizational failures. However, increasing demands upon directors and sitting CEOs, as well as constraints on the number of boards on which they can serve, has resulted in a dramatic increase in the use of retired independent directors. Compared to other directors with full-time job demands, we argue that RIDs have lesser (...) time constraints and greater attentional capacities with which to discharge their responsibilities, thereby improving overall board “bandwidth.” Using S&P 1500 firms for the period of 2000–2012, we find that enhanced board bandwidth associated with an increased proportion of RIDs on the board relates to greater resource provisioning through reducing costs of capital, improved monitoring through reducing disclosure-related weaknesses, and better accounting and market performance. We thereby advance traditional board bandwidth research by contemplating the available time that independent directors would have by virtue of being retired and relating this to board effectiveness. (shrink)

Much research has examined the positive effects of legitimacy spillover. However, negative events may reduce the extent of legitimacy, which may in turn spillover to affect the legitimacy of important stakeholders including alliance partners. This study examines incidents of regulative legitimacy violation and focuses on the effect such incidents have on the alliance partners of the perpetrating organizations. We specifically examine three types of such violations—administrative law, criminal law, and civil law—to show that the loss of regulative legitimacy negatively influences (...) the stock market performance of alliance partners. More interestingly, not all corrective actions and repair efforts are equally impactful. We show that the effect of repair efforts by the perpetrating firm on the alliance partner differ depending on the nature of those violating incidents. (shrink)

Using two experiments, I examine how apologizing for fraud influences investor's avoidance and revenge behavior. Investors in experiment one report how many shares they would sell and how likely they would be to pursue legal punishment after discovering fraud has occurred in an organization they are currently invested in and subsequently reading about management's response to the fraud. I manipulate the nature of fraud as fraudulent financial reporting or asset misappropriation. I also manipulate whether management apologizes, scapegoats responsibility, or remains (...) silent after the fraud. Results show avoidance and revenge behavior is more negative after misreporting fraud. Data suggest that this difference may be partially attributable to the underlying moral norm that is violated. Specifically, misreporting is primarily a moral violation of deception, whereas embezzlement is primarily a moral violation of stealing. Results also show differential investor reactions depending on the type of fraud and management's response. For misreporting, revenge behavior is higher when management apologizes, but there is no effect on avoidance behavior. For embezzlement, avoidance behavior is reduced when the organization apologizes, but revenge behavior is unaffected. In experiment two, I replicate the misreporting condition from experiment one and manipulate apology sincerity. Results show that apology sincerity is positively associated with revenge behavior. Results of these two experiments extend both accounting and trust repair research by emphasizing the importance of disentangling moral integrity-based trust violations and that the adage of "just say you're sorry" is helpful in some situations and harmful in others. (shrink)