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)
November 23, 2015
Forthcoming, Management Science
AFA 2013 San Diego Meetings Paper
Johnson School Research Paper Series No. 18-2012
We use the Sarbanes Oxley Act (SOX) as a quasi-natural experiment to examine the link between product market competition and internal governance mechanisms. Consistent with notion that competition plays an important role in aligning incentives within the firm, SOX led to a larger improvement in the operation of firms in concentrated industries than in non-concentrated industries. Further, within concentrated industries, the effect is especially pronounced among firms with weaker governance mechanisms prior to SOX. We corroborate these findings using two additional regulatory changes in the U.S. and abroad. Overall, our results indicate that corporate governance is more important when firms face less product market competition.
Number of Pages in PDF File: 45
Keywords: Corporate Governance, Product Market Competition, Sarbanes Oxley
JEL Classification: G34, G38
Date posted: March 20, 2012 ; Last revised: November 24, 2015
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