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Effect of the Sarbanes-Oxley Act on CEOs' Stock Ownership and Pay-Performance SensitivityHsihui ChangDrexel University Hiu Lam ChoyDrexel University Kam-Ming WanHong Kong Polytechnic University September 16, 2008 Review of Quantitative Finance and Accounting, 2011 Abstract: The Sarbanes-Oxley Act (SOX) provides a natural experiment for examining how stock ownership and executive pay structure adapt to a change in regulatory environment. Using annual compensation data of S&P 1500 firms in 1994-2005, we examine the impact of SOX on stock ownership and pay-performance sensitivity of CEOs. Consistent with our expectations, we find that in light of SOX: (i) stock ownership and (ii) the total pay-performance sensitivity of CEOs have decreased substantially, indicating that SOX induces a weaker incentive alignment between shareholders and CEOs. In contrast, we find that after SOX stock ownership and the total pay-performance sensitivity of CEOs have remained unchanged in the regulated industries.
Number of Pages in PDF File: 52 Keywords: SOX, CEO, stock ownership, pay-performance sensitivity JEL Classification: G38, J33, G32 Accepted Paper SeriesDate posted: September 16, 2008 ; Last revised: May 20, 2011Suggested CitationContact Information
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