Corporate Fraud, Local Connections and Directors

Abstract

We study the relation between geographical proximity of firms that a director belongs to and his ability to retain such directorships. Using the filing of securities class actions as an exogenous shock, we find that local directors – who serve on firms geographically close to the sued firm – lose more board appointments in other firms, compared to nonlocal directors. Local directors are also more likely to lose committee seats even if they retain board seats in the interlocked firms. They are also less likely to obtain new committee seats when they gain new directorships in the future. Our evidence suggests that the effects of negative information transmission among local businesses outweigh..