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Changes in corporate governance: externally dictated vs voluntarily determined

Tosun, Onur Kemal 2021. Changes in corporate governance: externally dictated vs voluntarily determined. International Review of Financial Analysis 73 , 101608. 10.1016/j.irfa.2020.101608
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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.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Publisher: Elsevier
ISSN: 1057-5219
Date of First Compliant Deposit: 23 October 2020
Date of Acceptance: 13 October 2020
Last Modified: 25 Nov 2020 12:03

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