You’ve Got a Friend: Examining Board Interlock Formation After Financial Restatements

We investigate the impact of financial restatements as critical events that influence board interlock formation among Fortune 500 firms during the 2009–2013 period. Our empirical study is based on a longitudinal analysis of tie formation while accounting for dynamic changes in the behavior and characteristics of network nodes using stochastic actor-oriented models. We find that firms facing financial restatements experience disruption in network ties. However, social status helps mitigate these effects, and restating firms build new ties through socially embedded processes, such as reciprocity and transitivity. Our work contributes to the understanding of how interorganizational relationships are altered as a result of financial restatement events.