Board Structure and Directors’ Role in Preventing Corporate Misconduct in the Construction Industry

Abstract

The control of corporate misconduct has become one of the most significant challenges facing society today. Every year hundreds of firms are prosecuted for illegal behavior. Although there is growing interest in corporate governance, there is minimal research on how it influences corporate misconduct. This study draws on organization economics and the strategic management literature to empirically investigate the relationship between board characteristics and firm misconduct. Using panel data on 45 publicly listed Taiwan construction companies between 2005 and 2014, the regression analysis revealed four findings of particular interest. First, multiple directorships have a U-shaped effect on illegal corporate acts. Second, experience diversity has a significant role in preventing corporate misconduct. Third, the impact of education diversity is positive and significant on firms’ illegal behaviors, implying that similar education background for directors could benefit corporate misconduct prevention. Finally, directors’ education level only has a limited effect, which may be explained by the characteristics of the construction industry.