Was Sarbanes-Oxley Costly? Evidence from Optimal Contracting on CEO Compensation

• 成果类型: Article
• 署名作者: GAYLE, GEORGE-LEV, I; LI, C. H. E. N.; MILLER, R. O. B. E. R. T. A.
• 署名单位: Washington University (WUSTL); Federal Reserve System - USA; Federal Reserve Bank - St. Louis; New York University; NYU Shanghai; Carnegie Mellon University
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.12436
• 发表日期: 2022
• 页码: 1189-1234
• 关键词: UNINTENDED CONSEQUENCES; executive-compensation; economic consequences; corporate governance; earnings management; short-term; long-term; ACT; SOX; INVESTMENT

摘要

This paper investigates the effects of regulatory interventions on contracting relationships within firms by examining the impacts of the Sarbanes-Oxley (SOX) Act on CEO compensation. Using panel data of the S&P 1500 firms, it quantifies welfare gains from a principal-agent model with hidden information and hidden actions. It finds that SOX: (1) reduced the conflict of interest between shareholders and their CEOs, mainly by reducing shareholder loss from CEOs deviating from their goal of expected value maximization; (2) increased the cost of agency, or the risk premium CEOs are paid to align their interests with those of shareholders; (3) increased administrative costs in the primary sector (which includes utilities and energy) but the effect in the other two broadly defined sectors, services and consumer goods, was more nuanced; and (4) had no effect on the attitude of CEOs toward risk.