Product Market Competition and Internal Governance: Evidence from the Sarbanes Oxley Act
University of Miami
Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC) Herzliyah
Rice University - Jesse H. Jones Graduate School of Business
Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC)
July 1, 2012
Johnson School Research Paper Series No. 18-2012
AFA 2013 San Diego Meetings Paper
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
Keywords: Corporate Governance, Product Market Competition, Sarbanes Oxley
JEL Classification: G34, G38
Date posted: March 20, 2012 ; Last revised: July 21, 2012
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