The Short-term and Long-term Impacts of Sar banes-Oxley Act on Independence and Compensation of Corporate Board of Directors
Document Type
Article
Publication Title
Journal of Global Business Issues
Abstract
The paper examines the impact of Sarbanes-Oxley (SOX, 2002) Act on board of directors' independence and compensation over the 2001-2006 period. The impact of the SOX Act on the number of "outside directors" in corporate boards is analyzed over the sample period. Incentive compatible equity compensation of directors to mitigate agency separation issues with shareholders, as advocated by SOX, is also studied in the pre-SOX and post-SOX periods. We find that U.S. corporations had significantly more outside directors after the Sarbanes-Oxley Act passed (i. e. in the 2003-2006 period) when compared to 2001. We observe a short-term, positive impact on equity-based compensation for directors between 2001 (pre-SOX) and 2003-2004 periods (post-SOX). On the other hand, we observe a reversal of equity- based compensation after 2004 to pre-SOX levels, implying that the effects of SOX on incentive compatible board compensation were temporary and short-lived. We conclude that policymakers must increase long-run monitoring of such Acts to ensure adherence to the corporate accountability guidelines and recommendations of the Act over time.
DOI
10.21863/ijfm/2015.5.4.019
Publication Date
1-2015
Recommended Citation
Kaya, Halil D. and Banerjee, Guarango, "The Short-term and Long-term Impacts of Sar banes-Oxley Act on Independence and Compensation of Corporate Board of Directors" (2015). Faculty Scholarship. 548.
https://digitalcommons.lindenwood.edu/faculty-research-papers/548