Board Structure, Payout Policy, and Performance during the Crisis: An Unintended Consequence of the Sarbanes-Oxley Act and the Exchange Listing Rules

56 Pages Posted: 7 Nov 2020

See all articles by Jie Chen

Jie Chen

Leeds University Business School, University of Leeds

Woon Sau Leung

The University of Edinburgh Business School, The University of Edinburgh

Date Written: October 17, 2019

Abstract

Non-compliant firms required to raise board independence by the 2003 NYSE and NASDAQ listing rules significantly increased their dividend payouts and held less cash reserves. As the crisis unfolded, they were more likely to reduce investment and ultimately under-performed compliant firms. The under-performance was more severe for non-compliant firms facing higher costs of external financing and those with greater growth opportunities. Our evidence suggests that regulations requiring independent boards facilitate higher dividends and thereby mitigate agency costs of free cash flow. However, they may also make firms more dependent on external financing and more susceptible to adverse external financing shocks.

Keywords: Board Structure; Payout Policy; Crisis; Firm Performance

JEL Classification: G30, G34, G35

Suggested Citation

Chen, Jie and Leung, Woon Sau, Board Structure, Payout Policy, and Performance during the Crisis: An Unintended Consequence of the Sarbanes-Oxley Act and the Exchange Listing Rules (October 17, 2019). Available at SSRN: https://ssrn.com/abstract=3694823 or http://dx.doi.org/10.2139/ssrn.3694823

Jie Chen (Contact Author)

Leeds University Business School, University of Leeds ( email )

Leeds LS2 9JT
United Kingdom

HOME PAGE: http://https://business.leeds.ac.uk/about-us/our-people/staff-directory/profile/jie-chen-1/

Woon Sau Leung

The University of Edinburgh Business School, The University of Edinburgh ( email )

29 Buccleuch Pl
Edinburgh, Scotland EH8 9JS
United Kingdom

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