Download This PaperThe Effects and Unintended Consequences of the Sarbanes-Oxley Act on the Supply and Demand for Directors
AFA 2006 Boston Meetings Paper
FMA Online, Vol. #, No. #, Year
The Review of Financial Studies, v22n8
54 Pages Posted: 23 Mar 2005 Last revised: 4 Mar 2018
There are 2 versions of this paper
The Effects and Unintended Consequences of the Sarbanes-Oxley Act on the Supply and Demand for Directors
The Effects and Unintended Consequences of the Sarbanes-Oxley Act on the Supply and Demand for Directors
Date Written: February 4, 2008
Abstract
Using 8,000 public companies we study the impact of the Sarbanes-Oxley Act (SOX) and other contemporary reforms on directors and boards, guided by their impact on the supply and demand for directors. SOX increased director workload and risk (reducing the supply), and increased demand by mandating that firms have more outside directors. We find both broad-based changes and cross-sectional changes (by firm size). Board committees meet more often post SOX and Director and Officer (D&O) insurance premiums doubled. Directors post SOX are more likely to be lawyers/consultants, financial experts and retired executives, and less likely to be current executives. Post-SOX boards are larger and more independent. Finally, we find significant increases in director pay and overall director costs, particularly among smaller firms.
Keywords: Board, board discretion, board function, board reform, corporate governance, director liability, independent director, regulation
JEL Classification: D23, G32, G34, G38, K22, M14
Suggested Citation: Suggested Citation
University of Georgia Law School
225 Herty Drive
Athens, GA 30602
United States
European Corporate Governance Institute (ECGI) ( email )
c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium