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.
Review of Quantitative Finance and Accounting – Springer Journals
Published: Jan 23, 2011
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