TY - BOOK

T1 - Noncompliance, financial reporting quality and director turnover

AU - Zhang, Xiu-Ye

PY - 2016

Y1 - 2016

N2 - In this thesis, I examine the effects of noncompliance with securities laws on financial reporting quality and director turnover. The thesis consists of three main chapters.Chapter 2 introduces the enforcement actions brought by the Securities and Exchange Commission (SEC), based on which I collect data on noncompliance cases. It also describes the data collection process and reports summary statistics for noncompliance cases. It contributes to our understanding of the SEC’s enforcement actions. The dataset is used in examining the effects of noncompliance with regulations on financial reporting quality and director turnover in Chapters 3 and 4, respectively.Chapter 3 investigates the association between noncompliance with securities laws and financial reporting quality. Compliance control and financial reporting quality are two overlapping aspects of control within the integrated internal control framework. I explore the association between compliance control and financial reporting quality by testing whether the rate of financial reporting problems is higher for firms that fail to comply with securities laws. I find that firms not complying with securities laws have significantly higher rates of financial reporting problems than control firms that do not violate securities laws. Furthermore, the results show that the effect is much stronger for accounting frauds than for accounting restatements, and the evidence is more pronounced in the post-noncompliance (with securities laws) windows than in the pre-noncompliance windows. This chapter presents the first empirical examination of the link between the compliance aspect of internal control and financial accounting problems.Chapter 4 investigates director turnover surrounding noncompliance events. While directors are expected to play a disciplining role, the evidence is still limited on this. I examine directors’ reactions to firm misconduct around the time when firms start to violate securities laws. I find, in general, that firms that failed to comply with securities laws (noncompliant firms) have significantly higher director turnover rates around the start of noncompliant than control firms. Noncompliant firms are also more likely to have unexpectedly departing directors around the start of noncompliance. When outside directors are examined separately, significantly higher director turnover is observed only for the pre-noncompliance period and not for the post-noncompliance period. These results suggest that directors are more likely to leave a firm if they perceive wrongdoing, while outside directors tend to leave before they could possibly be involved in the firm’s wrongdoing.

AB - In this thesis, I examine the effects of noncompliance with securities laws on financial reporting quality and director turnover. The thesis consists of three main chapters.Chapter 2 introduces the enforcement actions brought by the Securities and Exchange Commission (SEC), based on which I collect data on noncompliance cases. It also describes the data collection process and reports summary statistics for noncompliance cases. It contributes to our understanding of the SEC’s enforcement actions. The dataset is used in examining the effects of noncompliance with regulations on financial reporting quality and director turnover in Chapters 3 and 4, respectively.Chapter 3 investigates the association between noncompliance with securities laws and financial reporting quality. Compliance control and financial reporting quality are two overlapping aspects of control within the integrated internal control framework. I explore the association between compliance control and financial reporting quality by testing whether the rate of financial reporting problems is higher for firms that fail to comply with securities laws. I find that firms not complying with securities laws have significantly higher rates of financial reporting problems than control firms that do not violate securities laws. Furthermore, the results show that the effect is much stronger for accounting frauds than for accounting restatements, and the evidence is more pronounced in the post-noncompliance (with securities laws) windows than in the pre-noncompliance windows. This chapter presents the first empirical examination of the link between the compliance aspect of internal control and financial accounting problems.Chapter 4 investigates director turnover surrounding noncompliance events. While directors are expected to play a disciplining role, the evidence is still limited on this. I examine directors’ reactions to firm misconduct around the time when firms start to violate securities laws. I find, in general, that firms that failed to comply with securities laws (noncompliant firms) have significantly higher director turnover rates around the start of noncompliant than control firms. Noncompliant firms are also more likely to have unexpectedly departing directors around the start of noncompliance. When outside directors are examined separately, significantly higher director turnover is observed only for the pre-noncompliance period and not for the post-noncompliance period. These results suggest that directors are more likely to leave a firm if they perceive wrongdoing, while outside directors tend to leave before they could possibly be involved in the firm’s wrongdoing.

M3 - Doctoral Thesis

PB - Lancaster University

ER -