Friendly directors and the cost of regulatory compliance
M. Babajide Wintoki and
Yaoyi Xi
Journal of Corporate Finance, 2019, vol. 58, issue C, 112-141
Abstract:
We present evidence that, following the passage of the Sarbanes-Oxley Act, firms responded to the increased requirement for outside director monitoring by substituting insiders with outside directors who have social or professional connections to their CEOs. This substitution was most significant in firms that have higher outside director monitoring costs – small, young firms, firms outside the S&P 1500 index, and firms with low analyst scrutiny. The addition of these “friendly” directors did not reduce firm performance, suggesting that it may have been an efficient response by firms aimed at lowering the additional monitoring costs imposed by the new regulations. Our findings suggest that, as with many other aspects of board composition, the determinants and consequences of appointing friendly directors vary with the costs and benefits of outside director monitoring.
Keywords: Board independence; Friendly directors; CEO social networks; Monitoring costs; SOX (search for similar items in EconPapers)
JEL-codes: G30 G34 G38 G41 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0929119918303079
Full text for ScienceDirect subscribers only
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:58:y:2019:i:c:p:112-141
DOI: 10.1016/j.jcorpfin.2019.04.011
Access Statistics for this article
Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter
More articles in Journal of Corporate Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().