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Sarbanes-Oxley, governance, performance, and valuation

Listed author(s):
  • Nilanjan Basu
Registered author(s):

    Purpose - The purpose of this paper is to examine the effect of the passage of the Sarbanes-Oxley Act (SOX) on a number of governance and governance-related characteristics, such as board structure and committee composition, as well as the effect of those changes (if any) on both accounting performance and company value. Design/methodology/approach - The paper derives its results using a series of statistical analyses performed on the universe of firms comprising the S&P 500 index. To better gauge the effect of governance changes on firm performance, it uses four different performance measures. Findings - The paper finds that as a direct consequence of the passage of SOX, the fraction of outsiders on corporate boards and all major board committees has gone up significantly. In addition, total chief executive officer compensation relative to sales as well as the amount of illegal insider trading (measured by a proxy based on the abnormal profits derived from insider trades) have declined. Finally, board size has declined marginally. None of these changes, however, is associated with any improvement in corporate performance or value. Originality/value - The paper contributes to the brewing debate on the usefulness of SOX regulations. It examines several performance and governance-related variables that have been previously overlooked. In addition, unlike most previous studies that look at the effect of SOX on governance, or valuation, the paper controls for the incremental effect of stock exchange regulations.

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    Article provided by Emerald Group Publishing in its journal Journal of Financial Regulation and Compliance.

    Volume (Year): 18 (2010)
    Issue (Month): 1 (February)
    Pages: 32-45

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    Handle: RePEc:eme:jfrcpp:v:18:y:2010:i:1:p:32-45
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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    1. Switzer, Lorne N., 2007. "Corporate governance, Sarbanes-Oxley, and small-cap firm performance," The Quarterly Review of Economics and Finance, Elsevier, vol. 47(5), pages 651-666, December.
    2. repec:bla:joares:v:29:y:1991:i:2:p:193-228 is not listed on IDEAS
    3. Litvak, Kate, 2007. "The effect of the Sarbanes-Oxley act on non-US companies cross-listed in the US," Journal of Corporate Finance, Elsevier, vol. 13(2-3), pages 195-228, June.
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