The determinants and development of corporate board
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In response to the high-profile scandals like Enron and WorldCom, President Bush signed the Sarbanes-Oxley Act of 2002 (SOX) into law on July 30, 2002. SOX represents the most sweeping overhaul of the securities law since the Great Depression and brings significant changes to corporate governance and boards of directors. Studies on the impact of SOX on the board structure of listed firms have just begun. Unfortunately, this scholarly effort is hindered by our limited knowledge on the determinants of board structure. In my dissertation, I first study the determinants of board structure from 1990 to 2004. Using a large sample of nearly 7,000 US publicly-traded firms, I find strong evidence that firms adapt their board structure to their contracting needs in ways consistent with economic efficiency. The results call into question the efficacy of reforms mandating uniform structures across all firms. Next, I provide the first comprehensive study on the impact of SOX on corporate boards based on detailed hand-collected data as well as broad sample evidence. Contrary to the view of some legal scholars, I find that SOX has substantive effects on corporate boards beyond psychological effects. The passage of SOX accelerates the trend towards more independent boards but reverses the trend of decreasing board size. Boards become significantly larger post SOX, consistent with the idea of increasing board responsibility. More firms separate the two posts of CEO and the Chairman of the Board and more firms establish a nominating or governance committee post SOX. Further, the extent of these effects varies with firms characteristics. Director pay and the incentive portion of director pay increase significantly post SOX, consistent with the notion that director workload and risk have increased substantially during the period. There is strong evidence that SOX has imposed a disproportionate burden on small firms. For example, small firms paid $3.12 in director fees per $1,000 net sales in 2004, which is $1.00 more than they paid in 2001. For comparison, large firms paid 0.31 cents in director fees per $1,000 net sales in 2004, which is only 8 cents more than they paid in 2001.
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