Board Structure and Monitoring: New Evidence from CEO Turnovers
UNSW Business School; Financial Research Network (FIRN)
Ronald W. Masulis
University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN)
July 01, 2013
ECGI - Finance Working Paper No. 351/2013
7th Annual Conference on Empirical Legal Studies Paper
Changes in board composition mandated by new NYSE and NASDAQ listing rules following the Sarbanes-Oxley Act (SOX) are used to estimate how overall board independence and nominating committee independence affect board oversight of management. We find firms forced to raise board independence or to adopt a fully independent nominating committee exhibit greater forced CEO turnover sensitivity to performance relative to firms previously compliant. We show that more rapid post-SOX CEO turnover is not indicative of premature firing since stock and operating performance improve following these CEO turnovers and stock market reactions to CEO turnover announcements are no more negative in the post-SOX period than in the pre-SOX period for the previously noncompliant firms. Thus, we conclude that more independent boards and fully independent nominating committees lead to more effective CEO monitoring and discipline. Our nominating committee independence finding has important policy implications given the intense post-SOX debate on the costs and benefits of regulating board composition.
Number of Pages in PDF File: 80
Keywords: CEO Turnover; Nominating Committee Independence, Board Independence, Sarbanes-Oxley Act; Endogeneity
JEL Classification: G34, G38, J63, J41
Date posted: March 14, 2012 ; Last revised: July 10, 2013
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