Forthcoming, Management Science
45 Pages Posted: 20 Mar 2012 Last revised: 24 Nov 2015
Date Written: November 23, 2015
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.
Keywords: Corporate Governance, Product Market Competition, Sarbanes Oxley
JEL Classification: G34, G38
Suggested Citation: Suggested Citation
Chhaochharia, Vidhi and Grinstein, Yaniv and Grullon, Gustavo and Michaely, Roni, Product Market Competition and Internal Governance: Evidence from the Sarbanes Oxley Act (November 23, 2015). Forthcoming, Management Science; Johnson School Research Paper Series No. 18-2012. Available at SSRN: https://ssrn.com/abstract=2024733 or http://dx.doi.org/10.2139/ssrn.2024733