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This chapter examines the relationship between corporate governance and corporate fraud with a focus on internal and external governance characteristics and how they affect the likelihood of fraud. The chapter also examines the evidence on governance-related changes in firms affected by fraud.

Companies using search firms for board members pay CEOs higher salaries and total compensations. Such companies are less likely to fire CEOs after poor performance and more likely to engage in M&A with low returns. Using geographic distance as an instrument, we find search firm-identified directors negatively impact firm performance and governance.