Journal of Business Ethics

, Volume 140, Issue 1, pp 65–79 | Cite as

Firm Linkages to Scandals via Directors and Professional Service Firms: Insights from the Backdating Scandal

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Abstract

We examine market reactions to the stock options backdating scandal in a slightly unusual way, but focusing on firms who were not perceived to have had a backdating concern, but were instead linked to firms who did have a backdating concern. These linkages can be found via board interlocks and the roles those directors perform. In addition we examine the linkages which occur from shared professional services firms, such as auditors and outside legal counsel. That these potential conduits are available is not in question, but rather, do investors perceive the conduits are used to pass along information about backdating stock options? We then ask if affiliation with dominant audit and legal services firms ameliorates or exacerbates those investor market reactions. We find that firms linked to the scandalized firms also face negative reactions, which are worsened when they also are serviced by professional services firms who are themselves are also linked to the managerial practice.

Keywords

Backdating Stock options Board of director interlocks Professional services firms 

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Copyright information

© Springer Science+Business Media Dordrecht 2015

Authors and Affiliations

  1. 1.Kern Faculty Fellow of Engineering and EntrepreneurshipUniversity of DaytonDaytonUSA
  2. 2.University of VermontBurlingtonUSA

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