RELATIONSHIP BETWEEN BOARD INDEPENDENCE AND FIRM PERFORMANCE POST-SARBANES OXLEY

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Kiridaran Kanagaretnam, Gerald J. Lobo, Dennis J. Whalen

DOI:10.22495/cocv11i1art6

Abstract

We examine the relationship between board independence and firm performance over multiple years, post-Sarbanes Oxley. The enactment of the Sarbanes-Oxley Act (SOX) in July, 2002 coincided with the NYSE/NASDAQ proposals to alter their standards for listed companies. These changes included a requirement that boards be comprised of a majority of independent directors and tightened the criteria for a director to be considered “independent”. We hypothesize and find that the passage of SOX, together with the new NYSE/NASDAQ regulations, result in independent directors who are more effective monitors of management, leading to stronger firm performance. Our results should bolster investor confidence in the financial markets at a time when the NYSE/NASDAQ has strengthened the corporate governance standards for listed companies.

Keywords: Board Independence, Firm Performance, Sarbanes-Oxley Act

How to cite this paper: Kanagaretnam, K., Lobo, G. J., & Whalen, D. J.(2013). Relationship between board independence and firm performance post Sarbanes Oxley. Corporate Ownership & Control, 11(1), 65-80. http://dx.doi.org/10.22495/cocv11i1art6