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

Hsihui Chang*, Hiu Lam Choy, Kam Ming Wan

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

13 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
Peer-reviewed scientific journalReview of Quantitative Finance and Accounting
Volume38
Issue number2
Pages (from-to)177-207
Number of pages31
ISSN0924-865X
DOIs
Publication statusPublished - 01.02.2012
MoE publication typeA1 Journal article - refereed

Keywords

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

Fingerprint Dive into the research topics of 'Effect of the Sarbanes-Oxley act on CEOs' stock ownership and pay-performance sensitivity'. Together they form a unique fingerprint.

  • Cite this