How Do Public Companies Adjust Their Board Structures?

44 Pages Posted: 9 Mar 2008 Last revised: 16 May 2014

See all articles by David C. Cicero

David C. Cicero

Harbert College of Business, Auburn University

M. Babajide Wintoki

University of Kansas - School of Business

Tina Yang

University of South Florida - St. Petersburg

Date Written: February 10, 2010

Abstract

We show that public companies frequently changed their board structures before implementation of the Sarbanes-Oxley Act, with two-thirds of firms changing board size or independence during an average two-year period. Board changes were associated with changes in firm-specific fundamentals, but the rate of change toward predicted structures was negatively associated with the level of CEO influence. Companies changed board structures in either direction as underlying firm fundamentals changed, consistent with the pursuit of economically efficient board structures. However, board changes have become less frequent since the Sarbanes-Oxley Act was enacted. We provide some evidence that companies became less likely to decrease board independence when changes in fundamentals suggested they should, which may reflect a loss of economic efficiency.

Keywords: board independence, board size, board structure, board reform, corporate governance, regulation, endogeneity, dynamic adjustment

JEL Classification: D23, G34, G38, K22, M14

Suggested Citation

Cicero, David C. and Wintoki, Modupe Babajide and Yang, Tina, How Do Public Companies Adjust Their Board Structures? (February 10, 2010). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1102498 or http://dx.doi.org/10.2139/ssrn.1102498

David C. Cicero (Contact Author)

Harbert College of Business, Auburn University ( email )

415 Magnolia Ave.
Auburn, AL 36849
United States

Modupe Babajide Wintoki

University of Kansas - School of Business ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States

Tina Yang

University of South Florida - St. Petersburg ( email )

140 7th Ave S
Kate Tiedemann College of Business
St. Petersburg, FL 33701
United States
7278734568 (Phone)

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