The Effects and Unintended Consequences of the Sarbanes-Oxley Act on the Supply and Demand for Directors

Posted: 5 Aug 2009

See all articles by James S. Linck

James S. Linck

Southern Methodist University (SMU) - Finance Department

Jeffry M. Netter

Department of Finance; University of Georgia Law School

Tina Yang

University of South Florida

Multiple version iconThere are 2 versions of this paper

Date Written: August 2009

Abstract

Using eight thousand public companies, we study the impact of the Sarbanes-Oxley Act (SOX) of 2002 and other contemporary reforms on directors and boards, guided by their impact on the supply and demand for directors. SOX increased directors' 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 have 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: D23, G32, G34, G38, K22, M14

Suggested Citation

Linck, James S. and Netter, Jeffry M. and Yang, Tina, The Effects and Unintended Consequences of the Sarbanes-Oxley Act on the Supply and Demand for Directors (August 2009). The Review of Financial Studies, Vol. 22, Issue 8, pp. 3287-3328, 2009. Available at SSRN: https://ssrn.com/abstract=1443058 or http://dx.doi.org/hhn084

James S. Linck (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

Jeffry M. Netter

Department of Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States
706-542-4450 (Phone)

HOME PAGE: http://www.terry.uga.edu/directory/profile/jnetter/

University of Georgia Law School

225 Herty Drive
Athens, GA 30602
United States

Tina Yang

University of South Florida ( email )

140 7th Ave S
St. Petersburg, FL 33701
United States
7278734568 (Phone)

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