Economic Theory and Social Pressure: A Note on Director Departures in India
Professor R Narayanaswamy, Faculty in the Finance & Accounting area at IIM Bangalore, and Professor Kannan Raghunandan, Florida International University.Managerial Auditing Journal
The authors examine resignations of Indian audit committee directors after a systemic shock (failure of Satyam Computer Services Ltd.). They develop their research questions based on interviews with company directors and audit partners, in addition to economic theory. They then use archival data to test the research questions. They find that social and peer pressure is a very important factor in explaining such departures, and provides the basis for some counter-intuitive empirical results: for example, directors were less likely to resign from companies audited by Indian affiliates of PwC even though Satyam was audited by one such auditor, and ownership by founding families was not associated with director departures. Thus, a triangulation of economic theory and societal norms enables them to gain valuable insights about resignations of audit committee directors in India.
