The Influence of Board Characteristics On The Frequency of 10-K Investigations of Firms In The Financial Services Sector

Abstract

This study examined the possible impact of board member composition (numberof outside directors), board tenure, board size, and the number of other boards onwhich directors serve, on the number of investigations and/or legal proceedingsbrought against the sample firms by various individuals, groups, and federal andstate agencies. A sample of 180 firms were selected for study from the financialservices sector ofthe economy for the years 1998-2002.The results suggest that, contrary to theory, neither the proportion of outsidedirectors or board size had a significant affect on the number of investigationsbrought against the sample firms. Further, as predicted the results revealed asigntficant and negative link between board tenure and the number of 10K investigations,and a significant and positive relationship between the number of otherboards served on by directors and the number of investigations. Although contraryto theory, this last finding offers some evidence that directors who serve on severalother boards may become too distracted to properly monitor their firms.