How Do Public Companies Adjust Their Board Structures?
David C. Cicero
University of Alabama - Culverhouse College of Commerce & Business Administration
M. Babajide Wintoki
University of Kansas - School of Business
Villanova University - School of Business
February 10, 2010
Journal of Corporate Finance, Forthcoming
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.
Number of Pages in PDF File: 44
Keywords: board independence, board size, board structure, board reform, corporate governance, regulation, endogeneity, dynamic adjustment
JEL Classification: D23, G34, G38, K22, M14
Date posted: March 9, 2008 ; Last revised: May 16, 2014