The Effects and Unintended Consequences of the Sarbanes-Oxley Act on the Supply and Demand for Directors

Linck, James S.; Netter, Jeffry M.; Yang, Tina

doi:10.1093/rfs/hhn084

Cited by 502 publications

(313 citation statements)

References 42 publications

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“…Likely reflecting this proximate trend, director and officer insurance premiums increased substantially. Linck, Netter and Yang (2009) Instead, the pattern is more consistent with large costs arising from the fundamental corporate misconduct that gave rise to SOX, followed by a reduction in that misconduct (at least as perceived by litigants and other participants in the legal system). This pattern holds even after taking account of three of the largest all-time settlements (Enron, Worldcom, and Tyco).…”

Section: Direct Costs From Securities Litigation Related To Soxmentioning

confidence: 91%

SOX after Ten Years: A Multidisciplinary Review

Coates

Srinivasan²

2013

SSRN Journal

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We review and assess research findings from 120+ papers in accounting, finance, and law to evaluate the impact of the Sarbanes-Oxley Act. We describe significant developments in how the Act was implemented and find that despite severe criticism, the Act and institutions it created have survived almost intact since enactment. We report survey findings from informed parties that suggest that the Act has produced financial reporting benefits. While the direct costs of the Act were substantial and fell disproportionately on smaller companies, costs have fallen over time and in response to changes in its implementation. Research about indirect costs such as loss of risk taking in the U.S. is inconclusive. The evidence for and social welfare implications of claimed effects such as fewer IPOs or loss of foreign listings are unclear. Financial reporting quality appears to have gone up after SOX but research on causal attribution is weak. On balance, research on the Act's net social welfare remains inconclusive. We end by outlining challenges facing research in this area, and propose an agenda for better modeling costs and benefits of financial regulation.

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Section: Direct Costs From Securities Litigation Related To Soxmentioning

confidence: 91%

SOX after Ten Years: A Multidisciplinary Review

Coates

Srinivasan²

2013

SSRN Journal

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“…Link et al (2009) and Kang et al (2010)). Overall, our study contributes to the ongoing discussion regarding the influence of CEOs on the internal mechanisms of control of their firms.…”

Section: "In My Experience Few Directors In Modern Times Have Seen Tmentioning

confidence: 99%

“…Most of the existing finance studies on governance focus on the influence of firm characteristics rather than managerial effects on board structure (e.g., Coles et al (2008) and Link et al (2009)). …”

Section: "In My Experience Few Directors In Modern Times Have Seen Tmentioning

confidence: 99%

The discretionary effect of CEOs and board chairs on corporate governance structures

Arena

Braga‐Alves

2013

Journal of Empirical Finance

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In this study we analyze the effect of latent managerial characteristics on corporate governance. We find that CEO and board chair fixed effects explain a significant portion of the variation in board size, board independence, and CEO-chair duality even after controlling for several firm characteristics and firm fixed effects. The effect of CEOs on corporate governance practices is attributable mainly to executives who simultaneously hold the position of CEO and board chair in the same firm. Our results do not show a decline in CEO discretionary influence on corporate governance after the enactment of the Sarbanes-Oxley Act and stock exchange governance regulations.Keywords: corporate governance, board of directors, manager fixed effects, Sarbanes-Oxley Act JEL Classifications: G34, G38, J24, C23 The Discretionary Effect of CEOs and Board Chairs on Corporate Governance StructuresAbstract In this study we analyze the effect of latent managerial characteristics on corporate governance. We find that CEO and board chair fixed effects explain a significant portion of the variation in board size, board independence, and CEO-chair duality even after controlling for several firm characteristics and firm fixed effects. The effect of CEOs on corporate governance practices is attributable mainly to executives who simultaneously hold the position of CEO and board chair in the same firm. Our results do not show a decline in CEO discretionary influence on corporate governance after the enactment of the Sarbanes-Oxley Act and stock exchange governance regulations.1

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“…For example, Linck, et al, (2009) identified increased director and officer insurance premiums and more costly audit committees among the costs of SOX. Ahmed, et al, (2010) quantified the net cost of SOX and documented a significant drop in firms' cash flow profitability post-SOX.…”

Section: Studies On the Sox Effectmentioning

confidence: 99%

“…ii According to the extant literature, the enactment of SOX introduced significant compliance costs, which could lead U.S. firms to lower profitability and overall performance (Ahmed, McAnally, Rasmussen, & Weaver, 2010;Linck, Netter, & Yang, 2009). Thus, a plausible consequence of the enactment of SOX would have been reduced interest on the part of foreign investors in U.S. equities.…”

mentioning

confidence: 99%