Online from: 1992
Subject Area: Accounting and Finance
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|Title:||Sarbanes-Oxley, governance, performance, and valuation|
|Author(s):||Nilanjan Basu, (John Molson School of Business, Concordia University, Montreal, Canada), Orlin Dimitrov, (SKK Graduate School of Business, Sungkyunkwan University, Seoul, South Korea)|
|Citation:||Nilanjan Basu, Orlin Dimitrov, (2010) "Sarbanes-Oxley, governance, performance, and valuation", Journal of Financial Regulation and Compliance, Vol. 18 Iss: 1, pp.32 - 45|
|Keywords:||Corporate governance, Earnings, Insider trading, Laws and legislation|
|Article type:||Research paper|
|DOI:||10.1108/13581981011019615 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
|Acknowledgements:||JEL classification – D23, G32, G34, G38, K22|
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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