Estimating the effect of board independence on managerial ownership using a quasi-natural experiment

Exploring how independent directors view CSR inequality using a quasi-natural experiment

“…For firms where the board is not in compliance, this acted as an exogenous shock to their board independence. Prior studies exploit this exogenous shock as a quasi-natural experiment to examine the effects of board independence on various corporate outcomes, such as director characteristics, director costs, CEO compensation and CEO turnover, managerial ownership, corporate risk-taking, innovation productivity, external audit quality and CEO power (Engel et al, 2007;Leuz et al, 2008;Piotroski and Srinivasan, 2008;Chhaochharia and Grinstein, 2009;Guthrie, Sokolowsky, and Wan, 2012;Kamar et al, 2009;Linck et al, 2008;Guo and Masulis, 2015;Jiraporn and Nimmanunta, 2018;Jiraporn and Lee, 2018;Jiraporn et al, 2018bJiraporn et al, , 2018aJiraporn et al, , 2016Ongsakul and Jiraporn, 2019).…”

“…find that firms required to increase board independence significantly reduce exposure to three external governance mechanism, specifically, the market for corporate control, shareholder activism and credit markets. Jiraporn and Nimmanunta (2018), exploiting SOX as an exogenous shock, report that managerial ownership increases after the passage of SOX, implying that board independence and managerial ownership are complementary governance mechanisms, rather than substitutes. Jiraporn and Lee (2018) argue that co-opted directors, those appointed after the CEO assumed office, constitute a weak governance mechanism that allows managers to adopt corporate policies in their favor.…”

“…Finally, our study also extends the literature that exploits a legislation as an exogenous shock. While prior research, using the Sarbanes-Oxley Act (SOX) as a legislative shock, has explored several corporate outcomes and policies (Engel et al, 2007;Leuz et al, 2008;Piotroski and Srinivasan, 2008;Chhaochharia and Grinstein, 2009;Guthrie et al, 2012;Kamar et al, 2009;Linck et al, 2008;Guo and Masulis, 2015;Jiraporn and Nimmanunta, 2018;Jiraporn and Lee, 2018;Jiraporn et al, 2018bJiraporn et al, , 2018aJiraporn et al, , 2016Ongsakul and Jiraporn, 2019), our research is the first to use this regulatory shock to investigate CSR inequality.…”

How do independent directors view corporate social responsibility (CSR)? Evidence from a quasi‐natural experiment

“…Several recent studies exploit this exogenous shock as a quasi‐natural experiment to examine the impact of board independence on other internal governance mechanisms, such as director characteristics, director costs, CEO compensation, CEO turnover, and CEO power (Chhaochharia & Grinstein, 2009; Chintrakarn, Jiraporn, Kim, & Kim, 2015; Engel et al., 2007; Guo & Masulis, 2014; Guo et al., 2015; Guthrie et al., 2012; Jiraporn et al., 2018; Jiraporn & Nimmanunta, 2018; Kamar et al., 2009; Leuz et al., 2008; Linck et al., 2009; Piotroski & Srinivasan, 2008). Our study, however, is the first to exploit this exogenous shock to investigate the causal effect of board independence on CSR.…”

“…Fifth, our study adds to a fledging, although rapidly expanding, strand of the literature that exploits the passage of SOX as an exogenous shock (Chhaochharia & Grinstein, 2009; Engel, Hayes, & Wang, 2007; Guo & Masulis, 2014; Guo, Lach, & Mobbs, 2015; Guthrie, Sokolowsky, & Wan, 2012; Jiraporn & Nimmanunta, 2018: Jiraporn, Chintrakarn, Tong, & Treepongkaruna, 2018; Kamar, Karaca‐Mandic, & Talley, 2009; Leuz, Triantis, & Wang, 2008; Linck, Netter, & Yang, 2009; Ongsakul & Jiraporn, 2019; Piotroski & Srinivasan, 2008). This empirical strategy is considerably less susceptible to endogeneity and is thus far more likely to show a causal effect, something that most prior studies were not able to accomplish.…”