Executive directors remuneration after fraud and lawsuit revelation

Abstract

The twofold objectives of this study are; firstly, to determine whether fraud and lawsuit firms reduce their executives’ remuneration after fraud revelation; and secondly to empirically examine the effects of fraud and lawsuit revelation on the internal monitoring mechanisms which are board of directors (BOD) and remuneration committee. This study has a sample of 136 firms comprising 68 fraud and lawsuit firms that experienced fraud and lawsuit revelation from 2001 to 2006. The results revealed that the median executives’ remuneration between fraud and lawsuit firms is significantly different compared to non-fraud and non-lawsuit firms in the second year after the fraud and lawsuit revelation. It is found that fraud and lawsuit firms reduced the executives’ remuneration by 6% while non-fraud and nonlawsuit firms still increased the executives’ remuneration by 8.08%. Furthermore, the interesting finding is, fraud and lawsuit revelation further enhanced the monitoring role of the independent directors in fraud and lawsuit firms.