Abstract
The Sarbanes-Oxley Act represented a major legislative action designed to increase transparency and accountability in U.S. corporations. Within the context of agency theory and corporate governance, the expectation is that the enactment of Sarbanes-Oxley impacted the agency relationship of firms and hence affected the corporate governance structure. With these changes, the question arises as to the capital structure decisions of corporations which have previously been shown to be related to agency measures and corporate governance. It is the objective of this research to examine the capital structure of U.S. firms as they relate to corporate governance measures and to determine the effect, if any, of Sarbanes-Oxley.
Highlights
The Sarbanes-Oxley Act of 2002 (SOX) was adopted in the United States as a legislative response to the perceived lack of accountability and transparency on the part of many U.S corporations
In an effort to reduce the likelihood of future failures, Sarbanes-Oxley contained provisions that hold managers more accountable for the accuracy of financial statements and that provide for greater transparency in terms of the operations of firms
The primary focus of this paper is to empirically examine the relationship and impact of regulatory changes (i.e., Sarbanes-Oxley) on capital structure while controlling for measures of corporate governance and firm-specific characteristics
Summary
The Sarbanes-Oxley Act of 2002 (SOX) was adopted in the United States as a legislative response to the perceived lack of accountability and transparency on the part of many U.S corporations. In an effort to reduce the likelihood of future failures, Sarbanes-Oxley contained provisions that hold managers more accountable for the accuracy of financial statements and that provide for greater transparency in terms of the operations of firms. Further provisions related to the composition of corporate boards. One effect of this Act is a change in the agency relationship between shareholders and managers. There is an agency cost when the interests of managers diverge from the interest of the shareholders. Many aspects of corporate decision making and strategy have been shown to be related to agency issues including dividend decisions, capital structure decisions, research and development, and long term capital investment
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