Estimating the effect of board independence on managerial ownership using a quasi-natural experiment

Pornsit Jiraporn and Kridsda Nimmanunta

Applied Economics Letters, 2018, vol. 25, issue 17, 1237-1243

Abstract: Grounded in agency theory, this article investigates the effect of board independence on managerial ownership. We exploit the passage of the Sarbanes–Oxley Act and the associated exchange listing requirements as an exogenous regulatory shock that raises board independence. Our difference-in-difference estimates show that board independence leads to significantly higher managerial ownership. In particular, firms forced to raise board independence exhibit managerial ownership that is 26.35% higher, relative to firms not required to raise board independence. Thus, board independence and managerial equity ownership constitute governance mechanisms that act as complements, rather than substitutes. Our empirical strategy relies on a quasi-natural experiment and is far more likely to show a causal effect than what has been documented in the literature. Finally, an instrumental-variable analysis reinforces our conclusion.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/10.1080/13504851.2017.1412072 (text/html)
Access to full text is restricted to subscribers.

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:taf:apeclt:v:25:y:2018:i:17:p:1237-1243

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEL20

DOI: 10.1080/13504851.2017.1412072

Access Statistics for this article

Applied Economics Letters is currently edited by Anita Phillips

More articles in Applied Economics Letters from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().