Does Uncertainty About Economic Policy Prompt Boards to Change?

Economic policy uncertainty (EPU) measures the ambiguity that government officials introduce into fiscal, regulatory, or monetary policy (Baker, Bloom, and Davis, 2016).[1] EPU is intended to be a comprehensive measure of uncertainty, capturing ambiguity about a firm’s operating environment rather than serving simply as an early indicator of a recession or a weak economy. EPU spikes around close presidential elections, wars, the September 11 attacks, the collapse of Lehman Brothers, and the COVID-19 pandemic.

In our forthcoming paper in The Financial Review, we consider how boards of directors alter their structures to handle exogenous changes in uncertainty. EPU … Read more

How Sarbanes-Oxley Affects Board Changes and CEO Turnover

Following the corporate governance scandals of the early 2000s, the effectiveness of board monitoring came into question. In response, Congress passed the Sarbanes-Oxley Act of 2002 (SOX) in an attempt to increase monitoring and improve corporate governance. In conjunction with SOX, exchange listing requirements required firms to have a majority of independent directors on their boards.  While firms that did not already have such a majority were forced to alter their board structures, SOX may also have prompted other firms to alter the composition of their boards.  In our recent paper, published in the Journal of Banking and Finance, … Read more