ABSTRACT This study examines how different types of board ties affect firm value after revelations of serious corporate misconduct. Prior work has implicitly assumed that board tie benefits are uniform, without examining the alignment between tie‐changing behaviors and the dimension of violated expectations. Drawing on expectancy violation theory, we show that board ties are most effective when they signal restoration of the specific expectation breached. Using U.S. financial misconduct cases and matched nonfraudulent firms, we find that increasing ties to charity, which signal integrity restoration, significantly improves firm value. In contrast, high‐profile and nonredundant ties that are typically considered beneficial in normal times do not enhance firm value post‐misconduct. These findings add important nuance to understanding the impact of board ties on firm‐level outcomes, and contribute to the research on the intersection of corporate misconduct and organizational networks by demonstrating that alignment with the violated dimension is a critical boundary condition.
Park et al. (Sun,) studied this question.