Accounting, board independence and contagion effects from adverse press comment: The case of Elan

In early 2002 the Wall Street Journal published a damning article concerning the accounting methods used by Elan Corporation plc, which was the largest company quoted on the Irish Stock Market at the time. Consequently, the share price of Elan and some other Irish companies fell significantly. This paper evaluates whether Irish companies which had relatively good governance, in terms of their board structure, performed better than those with weaker governance at the time of the Elan scandal. It is reported that the average return of Irish companies other than Elan was not adversely affected over the event period. However, there was a differential reaction across companies depending on the quality of their corporate governance. Those with a less independent board structure lost out by about 4.2% over a three-day period compared with those with more independently structured boards of directors.