Board Structure Mandates: Consequences for Director Location and Financial Reporting

Zinat S. Alam (), Mark A. Chen (), Conrad S. Ciccotello () and Harley E. Ryan ()
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Zinat S. Alam: College of Business, University of Central Florida, Orlando, Florida 32816
Mark A. Chen: J. Mack Robinson College of Business, Georgia State University, Atlanta, Georgia 30303
Conrad S. Ciccotello: Daniels College of Business, University of Denver, Denver, Colorado 80210
Harley E. Ryan: J. Mack Robinson College of Business, Georgia State University, Atlanta, Georgia 30303

Management Science, 2018, vol. 64, issue 10, 4735-4754

Abstract: We examine how the director independence mandates of the Sarbanes–Oxley Act (SOX) and related reforms affected board geography and the quality of financial reporting. Using 1998–2006 data on the residential addresses of individual directors, we document that the geographic proximity to headquarters of audit committees and other monitoring committees declined upon implementation of the mandates. The decrease in proximity was especially large for those firms that were both SOX noncompliant and supply constrained in local director labor markets at the time the reforms were enacted. Moreover, firms with larger SOX-related losses of director proximity experienced significantly greater post-SOX declines in earnings quality. Our findings therefore suggest that, for some firms, the director independence mandates had unintended consequences for financial reporting quality.

Keywords: mandates; director location; financial reporting (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (9)

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