Thursday, September 22, 2005

SSRN-Effects and Unintended Consequences of the Sarbanes-Oxley Act on Corporate Boards by James Linck, Jeffry Netter, Tina Yang

SSRN-Effects and Unintended Consequences of the Sarbanes-Oxley Act on Corporate Boards by James Linck, Jeffry Netter, Tina Yang: "Effects and Unintended Consequences of the Sarbanes-Oxley Act on Corporate Boards"

Using firms in the Disclosure database, Linck, Netter, and Yang report that the Sarbanes-Oxley Act has increased the size of boards and has created more committees within boards. They also provide almost mind blowing evidence that the costs of boards--and more specifically the cost of compliance with the Sarbanes-Oxley Act (SOX)-- is significantly higher for small firms.

A very short look at some highlights:
"...although SOX does not explicitly prohibit unitary leadership (same person holds the two titles of the CEO and the Chairman of the Board), we see a distinct trend of firms moving away from this consolidated leadership structure..."

"the documented board changes are most significant for firms that are targeted by SOX – firms that originally do not have majority independent boards or firms that do not have completely independent audit committees."
"...small firms paid $5.91 to non-employee directors on every $1,000 in sales in the pre-SOX period, which increased to $9.76 on every $1000 in sales in the post-SOX period. In contrast, large firms incurred 13 cents in director cash compensation per $1,000 in sales in the Pre-SOXperiod, which increased only to 15 cents in the Post-SOX period."
Interesting stuff!

Cite:
Linck, James S., Netter, Jeffry M. and Yang, Tina, "Effects and Unintended Consequences of the Sarbanes-Oxley Act on Corporate Boards" (March 15, 2005). AFA 2006 Boston Meetings Paper http://ssrn.com/abstract=687496

1 comment:

Anonymous said...

We made a fairly major update to this paper since the version you posted. While the general conclusions are unchanged, many of the numbers did change (we expanded some of our samples, among other things). I'd be happy to send you the latest if you'd linck. Jim Linck