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The Impact of the Sarbanes-Oxley Act on the Dual-Class Voting Premium

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  • Feng Gao
  • Ivy Xiying Zhang

Abstract

We examine the impact of corporate governance laws on the private benefits of control, using the enactment of the Sarbanes-Oxley Act of 2002 (SOX) as a natural quasi experiment. We find a large decline in the average voting premium of US dual-class firms targeted by major SOX provisions that enhance boards' independence, improve internal controls, and increase litigation risks. The targeted firms also improve the efficiency of investment, cash management, and chief executive officers' compensation relative to firms not targeted by SOX. Overall, the evidence suggests that SOX is effective in curbing the private benefits of control.

Suggested Citation

  • Feng Gao & Ivy Xiying Zhang, 2019. "The Impact of the Sarbanes-Oxley Act on the Dual-Class Voting Premium," Journal of Law and Economics, University of Chicago Press, vol. 62(1), pages 181-214.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/701806
    DOI: 10.1086/701806
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    Cited by:

    1. Lawrence, Edward R. & Nguyen, Dung T. & Upadhyay, Arun, 2021. "Are US founding families expropriators or stewards? Evidence from quasi-natural experiment," Journal of Corporate Finance, Elsevier, vol. 69(C).
    2. Choi, Hyang Mi & Yoon, Pyung-Sig & Lim, Byungkwon, 2023. "Corporate governance and price differences between dual-class shares in Korea," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 304-319.
    3. DeLisle, R. Jared & Ferguson, Michael F. & Kassa, Haimanot & Zaynutdinova, Gulnara R., 2021. "Hazard stocks and expected returns," Journal of Banking & Finance, Elsevier, vol. 125(C).
    4. Chan, Ann Ling-Ching & Hsieh, Yi-Ting & Lee, Edward & Yueh, Meng-Lan, 2024. "Information environment and participation of foreign banks in U.S. syndicated loan market," Journal of Banking & Finance, Elsevier, vol. 161(C).
    5. Lin, James Juichia & Shi, Wei-Zhong & Tsai, Li-Fang & Yu, Min-Teh, 2022. "Corporate cash and the Firm's life-cycle: Evidence from dual-class firms," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 27-48.

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