The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu The leading online blog in the fields of corporate governance and financial regulation. Mon, 07 Sep 2026 11:30:09 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.10 https://corpgov.law.harvard.edu/wp-content/uploads/2024/02/cropped-photography-4-e1706898544564-1-32x32.png CEO-Director Connections and Corporate Fraud – The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu 32 32 CEO-Director Connections and Corporate Fraud https://corpgov.law.harvard.edu/2010/11/05/ceo-director-connections-and-corporate-fraud/?utm_source=rss&utm_medium=rss&utm_campaign=ceo-director-connections-and-corporate-fraud https://corpgov.law.harvard.edu/2010/11/05/ceo-director-connections-and-corporate-fraud/#comments Fri, 05 Nov 2010 15:15:31 +0000 http://blogs.law.harvard.edu/corpgov/?p=13708?d=20150106101955EST Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday, November 5, 2010
Editor's Note:

The following post comes to us from N.K. Chidambaran of the Finance and Economics Department at Fordham University, Simi Kedia of the Finance and Economics Department at Rutgers University, and Nagpurnanand Prabhala of the Finance Department at the University of Maryland.

In the paper, CEO-Director Connections and Corporate Fraud, which was recently made publicly available on SSRN, we study the propensity of firms to commit financial fraud using a sample of SEC enforcement actions from 2000 to 2006. Controlling for year effects, Fama-French 48-industry effects, and several firm characteristics, we find a significant relation between fraud probability and CEO-board connectedness.

The nature of this relation depends on the institutional origin of the connection. While nonprofessional connectedness due to shared educational and non-business antecedents increases fraud probability, professional connections formed due to common prior employment decrease fraud. The positive effects of professional connectedness are pronounced only when individuals share prior service as executives. The impact of professional-connections persists after the 2002 Sarbanes-Oxley Act while nonprofessional connections lose significance after SOX.

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