Management turnover and governance changes following the revelation of fraud

Fraud scandals can create incentives to change managers in an attempt to im prove the firm's performance, recover lost reputational capital, or limit t he firm's exposure to liabilities that arise from the fraud. It also is pos sible that the revelation of fraud creates incentives to change the composi tion of the firm's board, to improve the external monitoring of managers, o r to rent new directors' valuable reputational or political capital. Despit e such claims, we find little systematic evidence that firms suspected or c harged with fraud have unusually high turnover among senior managers or dir ectors. In univariate comparisons, there is some evidence that firms commit ting fraud have higher managerial and director turnover. But in multivariat e tests that control for other firm attributes, such evidence disappears. T hese findings indicate that the revelation of fraud does not, in general, i ncrease the net benefits to changing managers or the firm's leadership stru cture.