Changes in corporate governance: Externally dictated vs voluntarily determined

Onur Kemal Tosun

International Review of Financial Analysis, 2021, vol. 73, issue C

Abstract: Using the 2003 SEC regulations (following the Sarbanes–Oxley Act) on board independence as an identification for externally imposed governance changes, I compare its influence on firm performance to the effect of voluntarily conducted adjustments. I use publicly listed US firms between 1998 and 2009. In a triple-difference (dif-in-dif-in-dif) analysis setting, I explicitly interact the dictated change in board independence with the identifiers of the shock and non-compliant firms. Controlling for companies with voluntary changes, firms forced to modify their governance by increasing board independence experience a decrease in ROA, asset turnover, and sales growth. Testing the joint influence of dictated and voluntary adjustments in board independence on performance through a cross-sectional logistic-regression model, and controlling further for potential endogeneity through an instrumental variable (IV) regression model, I obtain consistent results. The findings are robust for other mandated provisions and stronger for bigger changes; small, single-segment firms operating in wholesale, retail, and high-tech industries; and constrained companies with financial distress, high leverage, low cash, high volatility, high growth and R&D expenses.

Keywords: Imposed regulations; Voluntary governance changes; Firm performance; Board independence; Identification (search for similar items in EconPapers)
JEL-codes: C33 G32 G38 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:73:y:2021:i:c:s1057521920302519

DOI: 10.1016/j.irfa.2020.101608

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