Do Firms Seek a Target Board Structure? Evidence from the Post-SOX Period

Journal of Financial Research, Volume 42, Issue 2, Summer 2019, Pages 361-381

39 Pages Posted: 2 Mar 2020

See all articles by Chune Young Chung

Chune Young Chung

Chung-Ang University - College of Business & Economics

Chang Liu

Hawaii Pacific University - College of Business Administration

Donna L. Paul

Washington State University

Date Written: 2019

Abstract

We investigate whether firms restructure board composition to align with changes in their contracting environment. Board size and independence increase with firm complexity, consistent with theoretical predictions. However, the hypothesized negative relationship between board independence and information costs is evident only for firms completing acquisitions. Furthermore, board independence increases to offset increases in CEO power in a sample of firms making acquisitions, but decreases when CEO power increases in a large cross-section of firms. We conclude that after the Sarbanes-Oxley Act of 2002, firms face constraints adjusting to target board structure, but these constraints can be mitigated by a shock to the contracting environment via acquisition.

Keywords: target board structure; board independence; contracting environment; mergers; SOX

JEL Classification: G30, G34

Suggested Citation

Chung, Chune Young and Liu, Chang and Paul, Donna L., Do Firms Seek a Target Board Structure? Evidence from the Post-SOX Period (2019). Journal of Financial Research, Volume 42, Issue 2, Summer 2019, Pages 361-381, Available at SSRN: https://ssrn.com/abstract=3527821

Chune Young Chung

Chung-Ang University - College of Business & Economics ( email )

84 Heuk-suk Ro
Seoul
Korea, Republic of (South Korea)

Chang Liu

Hawaii Pacific University - College of Business Administration ( email )

900 Fort Street Mall
Suite 600
Honolulu, HI 96813
United States

Donna L. Paul (Contact Author)

Washington State University ( email )

Carson College of Business
WA
United States

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