Discussion of Consequences of Financial Reporting Failure for Outside Directors: Evidence from Accounting Restatements and Audit Committee Members

摘要

Srinivasan examines turnover of outside directors in firms experiencing a restatement. He finds that outside directors (in particular, outside members of the audit committee) are more likely to leave the board of a company that completes a restatement and to subsequently lose directorships at other firms. The analysis of reputation consequences for outside directors from a financial reporting failure is an important question, but several substantive issues limit the inferences we can draw from the empirical analysis. Although the focus and inferences that can be drawn from the empirical analysis in Srinivasan are limited, it makes a good first step toward improving our understanding of the design of governance mechanisms. Plenty of work remains before we can map out any theoretical basis for the design of the many governance mechanisms employed by stakeholders to protect their interest (financial or otherwise) in the firm.