Estimating the effect of board independence on managerial ownership using a quasi-natural experiment

Pornsit Jiraporn, Kridsda Nimmanunta

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

Grounded in agency theory, this article investigates the effect of board independence on managerial ownership. We exploit the passage of the Sarbanes–Oxley Act and the associated exchange listing requirements as an exogenous regulatory shock that raises board independence. Our difference-in-difference estimates show that board independence leads to significantly higher managerial ownership. In particular, firms forced to raise board independence exhibit managerial ownership that is 26.35% higher, relative to firms not required to raise board independence. Thus, board independence and managerial equity ownership constitute governance mechanisms that act as complements, rather than substitutes. Our empirical strategy relies on a quasi-natural experiment and is far more likely to show a causal effect than what has been documented in the literature. Finally, an instrumental-variable analysis reinforces our conclusion.

Original languageEnglish (US)
Pages (from-to)1237-1243
Number of pages7
JournalApplied Economics Letters
Volume25
Issue number17
DOIs
StatePublished - Oct 7 2018

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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