Were Non-Independent Boards Really Captured Before Sarbanes-Oxley?

A central question in the corporate governance literature concerns the impact of boards on performance. Some studies support the view that governance structures endogenously arise as optimal solutions to the contracting environment of the firm. Many studies support an opposing view that governance structures can be captured by CEOs in ways that reduce monitoring, promote rent seeking by executives, and exacerbate corporate wrongdoing.

Papers in this latter vein generally support Sarbanes-Oxley era reforms that changed corporate governance and mandated independent boards of directors. However, clean evidence on the average effect of requiring independent boards is limited and contested, and basic … Read more