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Product Market Competition and Agency Conflicts: Evidence from the Sarbanes Oxley ActVidhi ChhaochhariaUniversity of Miami Gustavo GrullonRice University - Jesse H. Jones Graduate School of Business Yaniv GrinsteinCornell University - Samuel Curtis Johnson Graduate School of Management Roni MichaelyCornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC) July 2012 Abstract: We use the Sarbanes Oxley Act (SOX) as a natural experiment of a shock to internal governance to examine the link between product market competition and internal governance mechanisms. Consistent with the notion that product market competition is a close substitute for internal governance, we find that firms in concentrated industries experienced a larger improvement in operational efficiency after the approval of SOX than did firms in non-concentrated industries. These gains in efficiency appear to come from a significant reduction in production and administrative costs. Several robustness tests confirm that our main results are not driven by unobservable factors unrelated to changes in corporate governance.
Number of Pages in PDF File: 39 working papers seriesDate posted: March 19, 2008 ; Last revised: July 21, 2012Suggested CitationContact Information
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