Effect of the Sarbanes–Oxley act on CEOs’ stock ownership and pay-performance sensitivity

Chang, Hsihui; Choy, Hiu Lam; Wan, Kam-Ming

doi:10.1007/s11156-011-0226-3

Cited by 25 publications

(35 citation statements)

References 42 publications

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“…Many studies investigate the effects of law and regulations for corporations (Chang et al 2012;Jameson et al 2000). To investigate the impact from different regulatory systems, we classify our sub-sample banks from developed-OECD countries according to the origin of their legal systems into two groups: "common law" vs "civil law".…”

Section: ) Legal Originsmentioning

confidence: 99%

Bank performance and executive pay: tournament or teamwork

Luu²

2015

Rev Quant Finan Acc

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3We investigate the relationship between the dispersion of executive pay and bank performance/valuation by examining two competing theories, the tournament theory (hierarchical wage structure) and the equity fairness theory (compressed wage structure). The key variable of executive pay dispersion is measured using a hand-collected dataset composed of 63 banks from OECD countries and 29 banks from developing countries. The dataset covers the period 2004 to 2012. By combining and modifying a translog profit function and a pay-dispersion model, we are able to address the potential problems of relying on reducedform estimation. In our subsample of developed and civil law countries, where bank performance is measured by either Tobin's Q or by the price-to-book ratio, the overall impact of executive pay dispersion is mostly negative, and we find supporting evidence for the equity fairness theory, except for very high levels of dispersion. There is a non-linear effect, as banks perform best when there is either very low or very high executive pay dispersion. For developing country sample banks, greater executive pay dispersion has a negative impact on bank profit. In our subsample of common law countries, however, we find no evidence of a significant impact of executive pay dispersion on bank performance. We conclude that lower executive pay dispersion, a proxy for teamwork, is mostly effective in enhancing bank performance in a significant section of sample banks, i.e., civil law and developing countries.

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Section: ) Legal Originsmentioning

confidence: 99%

Bank performance and executive pay: tournament or teamwork

Luu²

2015

Rev Quant Finan Acc

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“…It is argued that firms have been subject to higher regulations and enhanced corporate oversight and scrutiny of accounting practices after the passage of SOX (Cohen et al 2008). In addition, Chang et al (2012) document that CEO pay-performance sensitivity decrease substantially after SOX. Thus management is more likely to practice conditional conservatism opportunistically before the passage of SOX and, accordingly, bondholders will negatively value conditional conservatism especially during the period before the passage of SOX.…”

Section: Additional Subsample Analysismentioning

confidence: 99%

Conditional conservatism and the yield spread of corporate bond issues

Liu

Magnan

2014

Rev Quant Finan Acc

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Building upon recent research which indicates that debt markets rather than equity markets shape financial reporting, this study examines how conditionally conservative financial reporting relates to the yield spread of corporate bond issues. Our findings suggest that the debt contract efficiency/information costs view of conditional conservatism, documented in private debt contracts, does not generalize to public debt contracts. Instead, a debt contract renegotiation costs perspective seems to better capture the dynamics of the public debt markets, with conditionally conservative reporting being associated with higher yield spread of corporate bond issues. Additional subsample test results indicate that the association between conditional conservatism and bond yield spreads is more pronounced in non-investment grade bonds, for bond issuers with more financial distress, and for bonds that are issued before the passage of the Sarbanes-Oxley Act. This study fills a gap in the conservatism literature, which focuses primarily on equity or private bank loan markets with traditional debt contract efficiency/information costs view.

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“…Thus, the R -squares for Chourou et al ' s model are between 0.12 (0.38^2) and 0.16 (0.40^2). 8 Research suggests that the extent of and type of performance-based compensation has changed in the post-Sarbanes-Oxley (SOX) period (for example, Chang et al , 2008 ).…”

Section: Summary and Implicationsmentioning

confidence: 99%

Compensation/audit committee overlap and the design of compensation systems

Zheng

Cullinan²

2009

Int J Discl Gov

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This study examines the association between director overlap (defi ned as overlapping membership on the compensation and audit committees) and incentive-based compensation schemes. Using a sample of fi rms in the S & P 500 over the period 1997 -2005, we fi nd that cash compensation plans are not associated with director overlap, while option compensation is negatively associated with director overlap. These results suggest that knowledge of the misstatementinducing effects of option-based compensation may spill over from the audit committee to the compensation committee, which may lead the compensation committee to reduce the optionbased component of executive compensation. This research sheds some light on the association between board structure and corporate governance effectiveness. Its fi ndings have important practical implications. Given the limited number of board members available, the organization must consider how to allocate an individual director among different committees. The fi ndings of this research provide some guidance in this regard. For instance, this study suggests that the overlapping of the compensation committee and the audit committee may be benefi cial to the design of compensation schemes because of the knowledge spillover between the two committees.

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Effect of the Sarbanes–Oxley act on CEOs’ stock ownership and pay-performance sensitivity

Cited by 25 publications

References 42 publications

Bank performance and executive pay: tournament or teamwork

Bank performance and executive pay: tournament or teamwork

Conditional conservatism and the yield spread of corporate bond issues

Compensation/audit committee overlap and the design of compensation systems

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