Dean Hanlon, Mehdi Khedmati, Edwin KiaYang Lim, Cameron Truong
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引用次数: 0
Abstract
We empirically capture boardroom backscratching, or cronyism, as when a firm's Chief Executive Officer (CEO) and directors concurrently receive excessive remuneration. We argue that boardroom backscratching can inhibit a board's constructive criticism and monitoring, resulting in a greater likelihood of bad news hoarding. Using 14,104 US firm-year observations spanning 1999–2020, we document a significant positive relationship between boardroom backscratching and stock price crash risk. In additional analyses, we show that boardroom backscratching firms produce less readable annual reports and engage in greater upward real earnings management as channels for concealing bad news. We also find that external monitoring mechanisms weaken the positive association between boardroom backscratching and stock price crash risk. Our main findings withstand several endogeneity tests including propensity score matching, entropy balancing, difference-in-differences analysis using firms’ commencement of boardroom backscratching and CEO turnover event analysis. Our study offers insights to securities regulators and policymakers to revisit the notion of board independence, develop relevant market oversight and revise director and executive remuneration disclosure requirements so as to mitigate adverse stock market performance associated with boardroom backscratching.
期刊介绍：
Journal of Business Finance and Accounting exists to publish high quality research papers in accounting, corporate finance, corporate governance and their interfaces. The interfaces are relevant in many areas such as financial reporting and communication, valuation, financial performance measurement and managerial reward and control structures. A feature of JBFA is that it recognises that informational problems are pervasive in financial markets and business organisations, and that accounting plays an important role in resolving such problems. JBFA welcomes both theoretical and empirical contributions. Nonetheless, theoretical papers should yield novel testable implications, and empirical papers should be theoretically well-motivated. The Editors view accounting and finance as being closely related to economics and, as a consequence, papers submitted will often have theoretical motivations that are grounded in economics. JBFA, however, also seeks papers that complement economics-based theorising with theoretical developments originating in other social science disciplines or traditions. While many papers in JBFA use econometric or related empirical methods, the Editors also welcome contributions that use other empirical research methods. Although the scope of JBFA is broad, it is not a suitable outlet for highly abstract mathematical papers, or empirical papers with inadequate theoretical motivation. Also, papers that study asset pricing, or the operations of financial markets, should have direct implications for one or more of preparers, regulators, users of financial statements, and corporate financial decision makers, or at least should have implications for the development of future research relevant to such users.
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