Sarbanes‐Oxley, governance, performance, and valuation

Abstract

PurposeThe purpose of this paper is to examine the effect of the passage of the Sarbanes‐Oxley Act (SOX) on a number of governance and governance‐related characteristics, such as board structure and committee composition, as well as the effect of those changes (if any) on both accounting performance and company value.Design/methodology/approachThe paper derives its results using a series of statistical analyses performed on the universe of firms comprising the S&P 500 index. To better gauge the effect of governance changes on firm performance, it uses four different performance measures.FindingsThe paper finds that as a direct consequence of the passage of SOX, the fraction of outsiders on corporate boards and all major board committees has gone up significantly. In addition, total chief executive officer compensation relative to sales as well as the amount of illegal insider trading (measured by a proxy based on the abnormal profits derived from insider trades) have declined. Finally, board size has declined marginally. None of these changes, however, is associated with any improvement in corporate performance or value.Originality/valueThe paper contributes to the brewing debate on the usefulness of SOX regulations. It examines several performance and governance‐related variables that have been previously overlooked. In addition, unlike most previous studies that look at the effect of SOX on governance, or valuation, the paper controls for the incremental effect of stock exchange regulations.

Corporate Governance in Bangladesh: Evidence of Compliance

“…However, considering the sensitivity of corporate governance research, especially in countries like Bangladesh where companies have started their corporate governance reform relatively recently, it is unlikely that companies would allow access to researchers to measure their company's corporate governance practices in depth or by direct observation. Perhaps that is the reason why almost all of the previous research studies on measuring compliance (Ahmed, 2006, Akkermans et al, 2007, Basu and Dimitrov, 2010, Henry, 2008, Mutawaa and Hewaidy, 2010 have the same limitation of measuring compliance by corporate governance disclosures.…”

The Mediating Effect of Disclosure on the Relationship Between Corporate Governance Mechanisms and Firm Performance of Islamic Banks

“…Number of directors on the board (Al-Nasser Mohammed & Muhammed, 2017; Basu & Dimitrov, 2010;Douissa & Azrak, 2017;Grassa & Matoussi, 2014;Klein, 2002;Lima Crisóstomo, de Souza Freire, & Cortes de Vasconcellos, 2011;Upadhyay, Bhargava, Faircloth, & Zeng, 2017;Weiying & Baofeng, 2008) Board Independence…”

“…Attention to the CG mechanism increased recently by many scholars. CG mechanism as the fundamental internal mechanism has been mentioned in many kinds of literature (Ararat, Black, & Yurtoglu, 2017;Basu & Dimitrov, 2010;Bhagat & Bolton, 2009;Black, Carvalho, Khanna, Kim, & Yurtoglu, 2016). However, based on The Organisation for Economic Co-operation and Development (OECD) (2015) and The Basel Committee on Banking Supervision (BCBS) (2015) overseeing the management performances and supervising the company strategy do by the board of director and management of the company.…”

Accounting Compensation Modeling Using The Analytic Hierarchy Process Supporting The Sarbanes-Oxley Act

“…It was aimed at deterring and punishing corporate and accounting fraud with severe penalties for wrongdoers, and protecting the interests of workers and shareholders. The Sarbanes-Oxley Act has the following major features: (1) it creates a Public Company Accounting Oversight Board to enforce professional standards, ethics, and competence for the accounting profession, (2) it strengthens the independence of firms that audit public companies, (3) it increases corporate responsibility and usefulness or corporate financial disclosure, (4) it increases penalties for corporate wrongdoing, (5) it protects the objectivity and independence of securities analysts, and (6) it increases Securities and Exchange Commission resources. There is no consensus in the literature with regard to the overall success of SOA (Basu & Dimitrov, 2010).…”

“…The Sarbanes-Oxley Act has the following major features: (1) it creates a Public Company Accounting Oversight Board to enforce professional standards, ethics, and competence for the accounting profession, (2) it strengthens the independence of firms that audit public companies, (3) it increases corporate responsibility and usefulness or corporate financial disclosure, (4) it increases penalties for corporate wrongdoing, (5) it protects the objectivity and independence of securities analysts, and (6) it increases Securities and Exchange Commission resources. There is no consensus in the literature with regard to the overall success of SOA (Basu & Dimitrov, 2010). The purpose of this paper is to examine the role of SOA in executive compensation and propose the use of the Analytic Hierarchy Process as a method to identify factors for input into an executive compensation package.…”