TY - JOUR
T1 - How do independent directors view powerful executive risk-taking incentives? A quasi-natural experiment
AU - Ongsakul, Viput
AU - Jiraporn, Pornsit
PY - 2019/12
Y1 - 2019/12
N2 - 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.
AB - 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.
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U2 - 10.1016/j.frl.2018.12.016
DO - 10.1016/j.frl.2018.12.016
M3 - Article
AN - SCOPUS:85059055747
SN - 1544-6123
VL - 31
SP - 463
EP - 470
JO - Finance Research Letters
JF - Finance Research Letters
ER -