How do independent directors view powerful executive risk-taking incentives? A quasi-natural experiment

Viput Ongsakul, Pornsit Jiraporn

Research output: Contribution to journalArticle

4 Scopus citations

Abstract

We explore how independent directors view managerial risk-taking incentives using a natural experiment. We exploit the passage of the Sarbanes-Oxley Act as an exogenous shock that raised board independence. Our difference-in-difference estimates show that independent directors view powerful risk-taking incentives unfavorably. Our results are consistent with the notion that strong managerial risk-taking incentives lead to excessive risk-taking and, as a result, are reduced in the presence of more effective governance, i.e. stronger board independence. Further analysis confirms the results, including fixed- and random-effects analysis, propensity score matching, and using Oster's (2017) method to test coefficient stability.

Original languageEnglish (US)
Pages (from-to)463-470
Number of pages8
JournalFinance Research Letters
Volume31
DOIs
StatePublished - Dec 2019

All Science Journal Classification (ASJC) codes

  • Finance

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