Restraining Overconfident CEOs through Improved Governance: Evidence from the Sarbanes-Oxley Act

• 成果类型: Article
• 署名作者: Banerjee, Suman; Humphery-Jenner, Mark; Nanda, Vikram
• 署名单位: University of Wyoming; University of New South Wales Sydney; Rutgers University System; Rutgers University New Brunswick; University of Texas System; University of Texas Dallas
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhv034
• 发表日期: 2015
• 页码: 2812
• 关键词: cash flow sensitivities; corporate governance; acquisitions; FIRMS; CONSEQUENCES; takeovers; genetics

摘要

The literature posits that some CEO overconfidence benefits shareholders, though high levels may not. We argue that adequate controls and independent viewpoints provided by an independent board mitigates the costs of CEO overconfidence. We use the concurrent passage of the Sarbanes-Oxley Act and changes to the NYSE/NASDAQ listing rules (collectively, SOX) as natural experiments, to examine whether board independence improves decision making by overconfident CEOs. The results are strongly supportive: after SOX, overconfident CEOs reduce investment and risk exposure, increase dividends, improve postacquisition performance, and have better operating performance and market value. Importantly, these changes are absent for overconfident-CEO firms that were compliant prior to SOX.