Damaged Goods: Board Decisions to Dismiss Reputationally Compromised Directors

Prior research shows that directors generally lose some, but not all, of their board seats following their association with financial fraud. This study investigates why some boards are more likely than others to dismiss a reputationally compromised colleague. Using resource dependence theory, we propose that a board's formal interest in securing resources and support from external audiences governs these decisions. We tested our hypotheses using data on the employment fate of directors associated with 63 fraud episodes. The findings contribute to understanding the process of professional devaluation and how resource provision obligations affect boards' governance decisions.