The Effects and Unintended Consequences of the Sarbanes-Oxley Act on the Supply and Demand for Directors

54 Pages Posted: 23 Mar 2005 Last revised: 3 Oct 2015

James S. Linck

Southern Methodist University

Jeffry M. Netter

University of Georgia - Department of Banking and Finance; University of Georgia Law School

Tina Yang

Villanova University - School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: February 4, 2008

Abstract

Using 8,000 public companies we study the impact of the Sarbanes-Oxley Act (SOX) and other contemporary reforms on directors and boards, guided by their impact on the supply and demand for directors. SOX increased director workload and risk (reducing the supply), and increased demand by mandating that firms have more outside directors. We find both broad-based changes and cross-sectional changes (by firm size). Board committees meet more often post SOX and Director and Officer (D&O) insurance premiums doubled. Directors post SOX are more likely to be lawyers/consultants, financial experts and retired executives, and less likely to be current executives. Post-SOX boards are larger and more independent. Finally, we find significant increases in director pay and overall director costs, particularly among smaller firms.

Keywords: Board, board discretion, board function, board reform, corporate governance, director liability, independent director, regulation

JEL Classification: D23, G32, G34, G38, K22, M14

Suggested Citation

Linck, James S. and Netter, Jeffry M. and Yang, Tina, The Effects and Unintended Consequences of the Sarbanes-Oxley Act on the Supply and Demand for Directors (February 4, 2008). AFA 2006 Boston Meetings Paper; FMA Online, Vol. #, No. #, Year. Available at SSRN: https://ssrn.com/abstract=902665 or http://dx.doi.org/10.2139/ssrn.687496

James S. Linck (Contact Author)

Southern Methodist University ( email )

Cox School of Business
Dallas, TX 75275
United States
214-768-3933 (Phone)

HOME PAGE: http://cox.smu.edu

Jeffry M. Netter

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States
706-542-3654 (Phone)

HOME PAGE: http://www.terry.uga.edu/finance/facultyprofiles/n

University of Georgia Law School

225 Herty Drive
Athens, GA 30602
United States

Tina Yang

Villanova University - School of Business ( email )

800 Lancaster Avenue
Villanova, PA 19085-1678
United States
610-519-5460 (Phone)

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