Sarbanes-Oxley, Governance and Performance (original) (raw)
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Corporate Governance and Firm Performance: Recent Evidence
We study the relationship between corporate governance and company performance. We consider five measures of corporate governance during the period 1998-2007. Given the passage of Sarbanes-Oxley Act (SOX) during 2002, we separate the sample into pre-2002 and post-2002 periods to study how governance-performance relationships might have been impacted by this regulation.
Director Ownership, Governance, and Performance
Journal of Financial and Quantitative Analysis, 2013
We study the impact of Sarbanes-Oxley Act on the relationship between corporate governance and company performance. We consider five measures of corporate governance during the period 1998-2007. We find a significant negative relationship between board independence and operating performance during the pre-2002 period, but a positive and significant relationship during the post-2002 period.
The paper examines the Sarbanes-Oxley (2002) Act's immediate impact on board composition and characteristics as well as possible reversals in its impact over time. Effects on directors' age and tenure are analyzed over the 2001-06 sample period. Female participation in corporate boards is also studied in the pre-SOX and post-SOX periods. The dual roles of directors in being a member of the board as well as serving as either CEO, CFO, Chairman, Co-Chair, Founder, or Lead Director of their respective companies is also examined. We observe a short-term impact of SOX on board compositions due to changes seen in board characteristics between 2001 (pre-SOX), and 2003-05 short-term period (post-SOX). Also, we observe a reversal of board characteristics in 2006 to pre-SOX levels implying that the effects of SOX on board composition were short-lived, and needs to be monitored over time to ensure adherence to corporate accountability guidelines over the long-term.
Corporate governance, compliance and valuation effects of Sarbanes-Oxley on US and foreign firms
International Journal of Business Governance and Ethics, 2009
This paper examines the longer-term corporate governance, compliance and valuation implications of Sarbanes-Oxley Act of 2002 (SOX) on US and foreign firms. Significant benefits of SOX are shown, particularly for small companies and US-traded foreign companies, although disproportional compliance costs are shown for the former. Firms that are less compliant with the legislation experience relatively higher abnormal returns, supporting the hypothesis that relaxing compliance constraints is value enhancing. Long-term abnormal returns are negatively related to board independence and CEO duality, but are positively related to the ownership by insiders and institutional investors.
Effects and Unintended Consequences of the Sarbanes-Oxley Act on Corporate Boards
SSRN Electronic Journal, 2005
Using 8,000 public companies we study the impact of the Sarbanes-Oxley Act (SOX) and other contemporary reforms on directors and boards, guided by their impact on the supply and demand for directors. SOX increased director workload and risk (reducing the supply), and increased demand by mandating that firms have more outside directors. We find both broad-based changes and cross-sectional changes (by firm size). Board committees meet more often post SOX and Director and Officer (D&O) insurance premiums doubled. Directors post SOX are more likely to be lawyers/consultants, financial experts and retired executives, and less likely to be current executives. Post-SOX boards are larger and more independent. Finally, we find significant increases in director pay and overall director costs, particularly among smaller firms.
The role of corporate governance during the pre- and post-Sarbanes Oxley periods
International Journal of Corporate Governance, 2010
This study examines the joint effects of the passing of Sarbanes-Oxley Act (SOX) of 2002 and firm-specific corporate governance mechanisms on the value-relevance of earnings. We find that value-relevance of earnings is significantly different for different sub-periods. We find that good corporate governance (proxied by lack of anti-takeover provisions) has a positive impact on the value-relevance of earnings only during the scandal (SCA) period. These results hold after controlling for changes in institutional ownership and earnings quality (EQ). Our results suggest that there is a substitution effect between good firm-specific corporate governance mechanisms and the strictness of the regulatory environment.
Foreword, Corporate Governance Five Years After Sarbanes-Oxley: Is There Real Change
2008
NEW YORK LAW SCHOOL LAW REVIEW elsewhere, 3 there is a deep meta-politics underlying the legal and economic criticisms of Sarbanes-Oxley. 4 In terms of substance, the first panel focused especially on provisions of the Act pertaining to public companies' boards. Reflecting this discussion, Professor Lawrence Lederman's article discusses the Walt Disney Company ("Disney") litigation involving Michael Eisner's hiring and firing of Michael Ovitz, and the Disney board's approval of the stunning compensation package awarded to Ovitz. As Professor Lederman describes, neither the litigants nor the court paid much attention to the chief executive officer ("CEO") succession issues that underlay the compensation dispute. 5 This was true despite the fact that CEO succession planning is accepted as a signal responsibility of corporate directors. 6 Although the Delaware Supreme Court exonerated the Disney board from liability for breach of fiduciary duty, Professor Lederman astutely proposes that the litigation might have taken a different turn if the plaintiffs had emphasized the board's abdication of its responsibilities for overseeing CEO succession-its failure to wrest control over succession planning from the company's obviously selfinterested, current chief executive. The second panel focused on the legal regulation of executive compensation-in particular, the extraordinarily large executive pay packages that continue to be announced even by firms that are in financial difficulty. 7 Because 3.
The Composition Of Corporate Boards Of Directors: Pre- And Post-Sarbanes-Oxley
Journal of Business & Economics Research (JBER), 2011
The purpose of this study is to examine corporate board characteristics pre- and post-Sarbanes-Oxley. More specifically, using a sample 1141 US publicly traded firms, board characteristics were identified and then changes in these characteristics were examined across the years 2001, 2004, and 2007. Our analyses reveal significant changes in 8 of 10 board characteristics examined. Implications and areas for future research are discussed.
Corporate governance and firm performance
Journal of Corporate Finance, 2008
How is corporate governance measured? What is the relationship between corporate governance and performance? This paper sheds light on these questions while taking into account the endogeneity of the relationships among corporate governance, corporate performance, corporate capital structure, and corporate ownership structure. We make three additional contributions to the literature: First, we find that better governance as measured by the Gompers, Ishii, and Metrick [Gompers, P.A., Ishii, J.L., and Metrick, A., 2003, Corporate governance and equity prices, Quarterly Journal of Economics 118(1), 107-155.] and , What matters in corporate governance?, Working paper, Harvard Law School] indices, stock ownership of board members, and CEO-Chair separation is significantly positively correlated with better contemporaneous and subsequent operating performance. Second, contrary to claims in GIM and BCF, none of the governance measures are correlated with future stock market performance. In several instances inferences regarding the (stock market) performance and governance relationship do depend on whether or not one takes into account the endogenous nature of the relationship between governance and (stock market) performance. Third, given poor firm performance, the probability of disciplinary management turnover is positively correlated with stock ownership of board members, and board independence. However, better governed firms as measured by the GIM and BCF indices are less likely to experience disciplinary management turnover in spite of their poor performance.
Corporate governance, Sarbanes-Oxley, and small-cap firm performance
The Quarterly Review of Economics and Finance, 2007
The recent debate on the onerous costs of compliance with the Sarbanes-Oxley Act has primarily focused on small firms. I study the effects of SOX compliance on such firms by comparing the performance of Canadian small-cap firms that are subject to SOX provisions with those that are not, while: (a) taking into account firms' internal and external governance mechanisms, including the market for corporate control, and (b) accounting for the simultaneous interactions between alternative governance mechanisms and firm performance. Firms subject to Sarbanes-Oxley experienced an incremental increase in market valuation ranging between 15.7% and 34% depending on the measure of board independence used in the estimation. Some sub-optimal deployment of the endogenous governance mechanisms is observed, while the market for corporate control serves as a positive disciplining factor.