Effect of the Sarbanes-Oxley act on CEOs' stock ownership and pay-performance sensitivity

Hsihui Chang, Hiu Lam Choy, Kam Ming Wan

Research output: Journal article publicationJournal articleAcademic researchpeer-review

14 Citations (Scopus)

Abstract

The main purpose of this paper is to provide evidence on the effect of the Sarbanes-Oxley Act on stock ownership and the various measures of pay-performance sensitivity of CEOs' wealth. The Sarbanes-Oxley Act (SOX) provides a natural experiment for examining how stock ownership and executive pay structure adapt to a change in regulatory environment. Using annual compensation data of S&P 1,500 firms in 1994-2005, we examine the impact of SOX on stock ownership and pay-performance sensitivity of CEOs. Consistent with our expectations, we find that in light of SOX: (1) stock ownership and (2) the total pay-performance sensitivity of CEOs have decreased substantially, indicating that SOX induces a weaker incentive alignment between shareholders and CEOs. In contrast, we find that after SOX stock ownership and the total pay-performance sensitivity of CEOs have remained unchanged in the regulated industries.
Original languageEnglish
Pages (from-to)177-207
Number of pages31
JournalReview of Quantitative Finance and Accounting
Volume38
Issue number2
DOIs
Publication statusPublished - 1 Feb 2012
Externally publishedYes

Keywords

  • CEO
  • Pay-performance sensitivity
  • SOX
  • Stock ownership

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)
  • Finance

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