The Impact of SOX on the Dual-Class Voting Premium

Abstract

We examine the impact of corporate governance laws on the private benefits of control, using the enactment of the Sarbanes-Oxley Act of 2002 (SOX) as a natural quasi-experiment. We find a large decline in the average voting premium of U.S. dual-class firms targeted by major SOX provisions that enhance board independence, improve internal controls and increase litigation risks. These targeted firms also improve the efficiency of investment, cash management, and CEO compensation. Overall, the evidence suggests that SOX is effective in curbing the private benefits of control.

Keywords: Private Benefits of Control, Voting Premium, Corporate Governance, Sarbanes-Oxley Act (SOX)

JEL Classification: G38, K22, G32