The evolution of the board interlock network following Sarbanes-Oxley

Abstract

We examine the impact of the passage of Sarbanes-Oxley (SOX) on the evolution of the board interlock network for Fortune 300 firms during the 1998–2006 period using a stochastic actor-oriented model. Placing particular emphasis on director accountability and board independence, SOX created considerable disparity in demand and supply in the labor market for corporate directors. We examine whether the regulatory change may have led firms to draw more on socially embedded processes of board interlock partner selection such as reciprocity, transitivity, and multiplexity after SOX. We find that after the passage of SOX, a firm’s tendency to reciprocate board interlock ties has been reinforced. Similarly, firms appear to have relied more on their existing alliance partners to fill their board seats in the post-SOX period.