External Board Memberships of Surviving CEO Following Financial Restatements

Complementing earlier research that has examined the turnover of CEOs following financial restatements, this paper focuses on surviving CEOs--those CEOs that continue in their positions even after financial restatements. Because CEOs of restating firms are held personally responsible for financial restatements in the wake of Sarbanes Oxley Act of 2002, surviving CEOs face additional pressures from internal and external stakeholders as well as face legitimacy loss. We examine how the surviving CEOs change their external board memberships in reaction to these pressures and potential legitimacy loss. We hypothesized and empirically found that surviving CEOs dropped their membership in corporate boards in the wake of financial restatements at much higher rate than CEOs in non-restatement contexts but added memberships in philanthropic foundations at a significantly higher rate than CEOs in non-restatement contexts. We further explored the moderating effects of CEO incentive pay on these changes following restatements. Our findings have implications for research on organizational misconduct, philanthropic foundations, and corporate governance.