The External Governance of Internal Governance: Evidence from Broker-Dealers and Insider Stock Gift Backdating

When: 01 Jul 2024, 14:15-15:30
Where: HoF 1.01 + online
Speaker: Ben Charoenwong

Hybrid event.

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Meeting ID: 697 0976 7121


We study the impact of mandated broker-dealer (BD) audit improvements focusing on internal controls testing on insider stock gift backdating following the implementation of more stringent internal controls testing by auditors in 2011. Comparing BDs with auditors already subject to PCAOB oversight (control) to those newly subject to PCAOB requirements (treatment), we find increased oversight and record-keeping standards reduce backdating. We find larger treatment effects for BDs offering more services, with a higher fraction of employees with some misconduct history, that are privately owned, and with longer auditor relationships whose auditors also had fewer clients. Overall, insider stock gifts decrease post-implementation, underscoring the importance of robust internal controls and regulatory oversight.