The Impact of the Sarbanes-Oxley Act on the Dual-Class Voting Premium

Feng Gao · Ivy Xiying Zhang

12 citations0/0 files storedThe Journal of Law and Economics

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Corporate Finance and Governance Auditing, Earnings Management, Governance Corporate Governance and Law

Abstract

We examine the impact of corporate governance laws on the private benefits of control, using the enactment of the Sarbanes-Oxley Act of 2002 (SOX) as a natural quasi experiment. We find a large decline in the average voting premium of US dual-class firms targeted by major SOX provisions that enhance boards’ independence, improve internal controls, and increase litigation risks. The targeted firms also improve the efficiency of investment, cash management, and chief executive officers’ compensation relative to firms not targeted by SOX. Overall, the evidence suggests that SOX is effective in curbing the private benefits of control.

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References

1999Corporate Ownership Around the World 1997Legal Determinants of External Finance 2000Investor protection and corporate governance 2000The separation of ownership and control in East Asian Corporations 2002Audit committee, board of director characteristics, and earnings management 1999Corporate governance, chief executive officer compensation, and firm performance 1998Agency Problems and Dividend Policies Around the World 1996Firm Performance and Mechanisms to Control Agency Problems between Managers and Shareholders

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