Board Structure Mandates: Consequences for Director Location and Financial Reporting

Forthcoming in Management Science

48 Pages Posted: 31 May 2015 Last revised: 13 Feb 2017

See all articles by Zinat S. Alam

Zinat S. Alam

University of North Texas, College of Business Administration, Department of Finance, Insurance Real Estate and Law

Mark A. Chen

Georgia State University - Robinson College of Business

Conrad S. Ciccotello

Daniels College of Business, University of Denver

Harley E. Ryan

Georgia State University - Department of Finance

Date Written: December 1, 2016

Abstract

We examine how the director independence mandates of the Sarbanes-Oxley Act (SOX) and related reforms affected board geography and the quality of financial reporting. Using 1998-2006 data on the residential addresses of individual directors, we document that the geographic proximity to headquarters of audit committees and other monitoring committees declined upon implementation of the mandates. The decrease in proximity was especially large for those firms that were both SOX-noncompliant and supply-constrained in local director labor markets at the time the reforms were enacted. Moreover, firms with larger SOX-related losses of director proximity experienced significantly greater post-SOX declines in earnings quality. Our findings therefore suggest that, for some firms, the director independence mandates had unintended consequences for financial reporting quality.

Keywords: Board structure, Sarbanes-Oxley Act, geographic location, labor supply, monitoring, financial reporting

JEL Classification: G30, G31, G34

Suggested Citation

Alam, Zinat S. and Chen, Mark A. and Ciccotello, Conrad S. and Ryan, Harley E., Board Structure Mandates: Consequences for Director Location and Financial Reporting (December 1, 2016). Forthcoming in Management Science, Available at SSRN: https://ssrn.com/abstract=2612096 or http://dx.doi.org/10.2139/ssrn.2612096

Zinat S. Alam

University of North Texas, College of Business Administration, Department of Finance, Insurance Real Estate and Law ( email )

1155 Union Circle #305340
Denton, TX 76203
United States

Mark A. Chen (Contact Author)

Georgia State University - Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

Conrad S. Ciccotello

Daniels College of Business, University of Denver ( email )

2201 S. Gaylord St
Denver, CO 80208-2685
United States

Harley E. Ryan

Georgia State University - Department of Finance ( email )

University Plaza
35 Broad Street, Suite 1221
Atlanta, GA 30303-3083
United States
404-651-2674 (Phone)
404-651-2630 (Fax)

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