Product market competition and internal governance: Evidence from the Sarbanes-Oxley Act

Vidhi Chhaochharia, Yaniv Grinstein, Gustavo Grullon, Roni Michaely

Research output: Contribution to journalArticle

21 Scopus citations

Abstract

We use the Sarbanes-Oxley Act of 2002 (SOX) as a quasi-natural experiment to examine the link between product market competition and internal governance mechanisms. Consistent with the notion that competition plays an important role in aligning incentives within the firm, SOX has led to a larger improvement in the operation of firms in concentrated industries than in nonconcentrated industries. Furthermore, within concentrated industries, the effect is especially pronounced among firms withweaker governance mechanisms prior to SOX. We corroborate these findings using two additional regulatory changes in the United States and abroad. Overall, our results indicate that corporate governance is more important when firms face less product market competition.

Original languageEnglish (US)
Pages (from-to)1405-1424
Number of pages20
JournalManagement Science
Volume63
Issue number5
DOIs
StatePublished - May 1 2017

Keywords

  • Corporate governance
  • Product market competition
  • Sarbanes-Oxley Act of 2002

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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