Is Classified Board the Weak Corporate Governance? Evidence from Financial Restatements

• In Event: Corporate Governance and Organizational Issues in Financial Accounting

Abstract

Prior literature suggests that classified boards may have the opposite impacts on financial restatements: some emphasize the exacerbating impact, while others advocate the mitigating impact. This study extends prior research by examining whether classified boards exacerbate or mitigate restatements. Specifically, this study finds that the presence of classified boards is significantly negatively associated with the incidence of financial restatements. This result is robust to alternative tests. Overall, our result casts doubt on the view of the exacerbating impact, while it supports the argument on the mitigating impact as shown by the reduction in the incidence of restatements in firms with classified boards.

Authors

• Yin Liu, UMass Lowell

• Taewoo Kim, University of Massachusetts-Lowell

• Khondkar E Karim, University of Massachusetts-Lowell