We ﬁnd that connections CEOs develop with top executives and directors throughtheir appointment decisions increase the risk of corporate fraud. Appointment-basedCEO connectedness in executive suites and boardrooms increases the likelihoodof committing fraud and decreases the likelihood of detection. Additionally, it de-creases the expected costs of fraud by helping conceal fraudulent activity, makingCEO dismissal less likely upon discovery, and lowering the coordination costs ofcarrying out illegal activity. Connections based on network ties through past employ-ment, education, or social organization memberships have insigniﬁcant effects onfraud. Appointment-based CEO connectedness warrants attention from regulators,investors, and corporate governance specialists.
"CEO Connectedness and Corporate Frauds"
Areas of Interest
The Journal of Finance