Board changes and CEO turnover: The unanticipated effects of the Sarbanes-Oxley Act

    Authors

    M. A. Dah; M. B. Frye;M. Hurst

    Comments

    Authors: contact us about adding a copy of your work at STARS@ucf.edu

    Abbreviated Journal Title

    J. Bank Financ.

    Keywords

    Boards of directors; CEO turnover; Sarbanes-Oxley Act; CORPORATE GOVERNANCE; FIRM PERFORMANCE; DIRECTORS; DETERMINANTS; SIZE; OWNERSHIP; MARKET; Business, Finance; Economics

    Abstract

    The board independence requirements enacted in conjunction with the Sarbanes Oxley Act of 2002 (SOX) provided motivation for firms that were already compliant with the regulations to alter their board structure. We consider actual board changes made by compliant firms and how such changes affect the monitoring efficiency of the boards. We find that the majority of compliant firms (approximately 56%) add independent directors following SOX. However, we find a nontrivial number of firms (approximately 26%) actually decrease the number of independent directors to move closer to the stated 50% requirement. For firms that decrease independence, the CEO turnover performance sensitivity significantly decreases following SOX. We also find that large board independence changes seem to be most detrimental to the monitoring function of the board. Our results highlight that SOX may have had unintended consequences. (C) 2014 Elsevier B.V. All rights reserved.

    Journal Title

    Journal of Banking & Finance

    Volume

    41

    Publication Date

    1-1-2014

    Document Type

    Article

    Language

    English

    First Page

    97

    Last Page

    108

    WOS Identifier

    WOS:000333505600008

    ISSN

    0378-4266

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