We investigate the relation between board composition and operational risk events of financial institutions in the period from 1996 to 2010. Drawing from corporate governance literature, we consider the impact of board characteristics on the likelihood of operational risk events. Overall, our findings suggest that board size is negatively and non-linearly associated with the possibility of operational risk events. For the event types of “Clients, Products, and Business Practices,” and “Internal Fraud and External Fraud,” firms with a higher proportion of independent directors are less likely to suffer from fraud or failure to comply with professional obligations to clients. Our results on age and tenure heterogeneity also indicate that having a more diverse board can have an adverse impact on the board monitoring function. These results can shed new light on board demographics and operational risk management in financial institutions

This study shows how professional ties assist directors in gaining future board positions when their reputation is tainted by accounting fraud. We demonstrate that the influence of professional ties is more prominent for directors who are more heavily impacted by fraud. This effect is also stronger when directors share professional ties with key board members in the appointing firms. Additional tests show that appointments of these directors are associated with more favorable market reactions compared to appointments of other tainted directors. We also find that firms’ financial reporting quality improves after appointing professionally connected tainted directors

With the recent evolution of the cryptocurrency market, financial misconduct has become a major concern. Using on-chain data from the 500 most traded NFT (non-fungible token) collections, this study investigates wash trading in NFT markets. We first detect suspicious wash trades that form closed loops and then validate the prices of these trades using Benford’s Law. Excluding token-incentivized wash trades, we propose a conceptual model and argue that collusion between wash traders and insiders is the primary motivation of wash trading. Empirical analysis reveals that insiders tend to sell during or shortly after wash trading. This manipulation creates a pump-and-dump effect, causing losses for buyers during the pump phase. Our research reveals the underlying mechanisms of such misconduct and highlights the need for regulation in the cryptocurrency market

In its 2010 Morrison v. National Australia Bank ruling, the U.S. Supreme Court determined that key fraud-related provisions of U.S. securities laws would apply only to transactions in foreign securities that take place on U.S. exchanges. We document a large increase in the price of U.S. cross-listed foreign stocks relative to their currency-adjusted equivalent home-market shares around the decision, which we associate with the newly differentiated legal status accorded U.S. cross-listed shares. The market’s reaction to the decision affirms that investors value how U.S. securities laws apply an element of the “bonding” hypothesis as a motive for international cross-listings. Received June 7, 2017; editorial decision November 13, 2017 by Editor Paolo Fulghieri

1. A Framework for Ethical Decision Making. 2. Diagnosing and Treating Market Inadequacies. 3. The Legal System, Product Liability and the Creative Use of Bankruptcy. 4. Environmental Issues and the Law of Damages. 5. Fraud, Legal and Financial Agency, Ethics and the Fiduciary Relationship. 6. Regulation: With an Emphasis on Financial Markets. 7. Regulating Financial Markets: Commercial Banking. 8. Regulating Financial Markets: Investment Banking, Securities Markets and Money Management. 9. Corporate Power and Social Responsibility and the Issue of Antitrust. Index

The prevalence of shirking within a large Italian bank appears to be characterized by significant regional differentials. In particular, absenteeism and misconduct episodes are substantially more prevalent in the south. We consider a number of potential explanations for this fact: different individual backgrounds; group-interaction effects; sorting of workers across regions; differences in local attributes; different hiring policies; and discrimination against southern workers. Our analysis suggests that individual backgrounds, group-interaction effects, and sorting effects contribute to explaining the north-south shirking differential. None of the other explanations appears to be of first-order importance

Operational risk incidences are likely to increase the degree of information asymmetry between firms and investors. We analyze operational risk disclosures by US financial firms during 1995–2009 and their impact on different measures of information asymmetry in the firms’ equity markets. Effective spreads and the price impact of trades are shown to increase around the first announcements of such events and to revert after the announcement of their settlement. This is especially pronounced for internal fraud and business practices related events. Market makers respond to higher information risk around the first press cutting date by increasing the quoted depth to accommodate an increase in trading volumes. The degree of information asymmetry around operational risk events may be influenced by the bank’s risk management function and the bank’s governance structure. We indeed find that information asymmetry increases more strongly after events’ first announcements when firms have weaker governance structures—lower board independence ratios, lower equity incentives of executive directors, and lower levels of institutional ownership. In contrast, the firms’ risk management function has little to no impact on information asymmetry. We interpret this as evidence that the risk management function is primarily driven by regulatory compliance needs. The results of this study contribute to our understanding of information asymmetry around operational risk announcements. They help to shed light on the role that regulation and corporate governance can play in order to establish effective disclosure practices and to promote a liquid and transparent securities market

Process automation reduces racial disparities in credit access by enabling smaller loans, broadening banks' geographic reach, and removing human biases from decision making. We document these findings in the context of the Paycheck Protection Program (PPP), where private lenders faced no credit risk but decided which firms to serve. Black‐owned firms obtained PPP loans primarily from automated fintech lenders, especially in areas with high racial animus. After traditional banks automated their loan processing procedures, their PPP lending to Black‐owned firms increased. Our findings cannot be fully explained by racial differences in loan application behaviors, preexisting banking relationships, firm performance, or fraud rates