Surviving and Thriving after Crises Exploring the Impact of Corporate Fraud on Firm Performance: The Moderating Role of Board Independence
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2025-07-07
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en
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This study examines the impact of corporate fraud on firm performance and explores the moderating role of board independence through the lens of signaling theory. It hypothesizes that corporate fraud has a negative effect on firm performance, and that this effect is less severe for firms with a more independent board of directors. Drawing on a sample of 252 publicly listed firms in the United States and 499 corporate fraud events between 2002 and 2024, this research applies event study and OLS regression methodologies to measure stock market reactions to fraud announcements. The findings indicate that corporate fraud is associated with statistically significant negative cumulative abnormal returns (CARs), supporting the notion that corporate fraud acts as a negative governance signal to investors. Moreover, firms with higher board independence experience less negative stock market reactions, suggesting that independent boards serve as a positive governance signal. These findings contribute to the literature by demonstrating that the level of board independence helps explain differences in stock market reactions to corporate fraud, and that independent boards can help mitigate the negative impact of fraud on short-term firm performance. This highlights how the interaction between negative and positive governance signals shapes stock market reactions.
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Faculteit der Managementwetenschappen