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Do Firms Seek A Target Board Structure? Evidence From The Post‐Sox Period

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  • Chune Young Chung
  • Chang Liu
  • Donna L. Paul

Abstract

We investigate whether firms restructure board composition to align with changes in their contracting environment. Board size and independence increase with firm complexity, consistent with theoretical predictions. However, the hypothesized negative relation between board independence and information costs is evident only for firms completing acquisitions. Furthermore, board independence increases to offset increases in CEO power in a sample of firms making acquisitions, but decreases when CEO power increases in a large cross‐section of firms. We conclude that after the Sarbanes–Oxley Act of 2002, firms face constraints adjusting to target board structure, but these constraints can be mitigated by a shock to the contracting environment via acquisition.

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  • Chune Young Chung & Chang Liu & Donna L. Paul, 2019. "Do Firms Seek A Target Board Structure? Evidence From The Post‐Sox Period," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 42(2), pages 361-381, July.
    • Handle: RePEc:bla:jfnres:v:42:y:2019:i:2:p:361-381
    DOI: 10.1111/jfir.12173
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    Cited by:

    1. Annie Caruana & Peter J. Baldacchino & Norbert Tabone3 & Lauren Ellul4 Simon Grima5 & 6, 2023. "The Board Mix of Maltese Listed Entities and its Corporate Governance Implications," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 381-405.
    2. Melissa B. Frye & Duong T. Pham & Rongrong Zhang, 2022. "Board monitoring and advising trade‐offs amidst economic policy uncertainty," The Financial Review, Eastern Finance Association, vol. 57(1), pages 5-26, February.

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