Changes in corporate governance following allegations of fraud against shareholders versus fraud against the government.

Abstract

This dissertation examines changes in corporate governance subsequent to allegations of fraud against the government under the False Claims Act (FCA) and compares them to governance changes after allegations of fraud in shareholder class action (SCA) lawsuits. While shareholders have clear incentives to bring about changes in top management and improve board independence when they themselves are defrauded by managers, their incentives are not that clear in cases of fraud committed by managers against the government that may result in net gains to shareholders. A particularly interesting finding of my study is that top management turnover and improvement in board independence is significantly greater following SCA lawsuits, where shareholders are the wronged party, relative to FCA lawsuits, where the fraud is committed against the government. The evidence questions shareholder ethics in responding to fraud. It appears that shareholders respond harshly when they have unambiguously suffered a loss, but may condone managerial misconduct when it may provide or promise net benefits to them.