Document Type
Article
Publication Date
3-1-2006
Abstract
The results of governance research are mixed concerning the financial consequences of externally induced regulations. The debate hinges on the assumption that adoption of regulation is an exogenous factor in determining performance. Drawing on basic insights from institutional theory and innovation studies, I argue that response to regulation is in fact a mediator of the relationship between 'quality of governance' and financial performance. Focusing on the adoption of Sarbanes-Oxley (Sarbox) regulation by publicly traded companies, I hypothesize that governance quality is likely to affect financial success by influencing organizational responses to Sarbox. Using multiple year data from two large datasets, I test the hypothesis and find considerable support for the argument. The results of two-stage least squares analysis suggest that, although response to Sarbox is not directly related to financial performance, quality of governance affects performance through the adoption of Sarbox. Companies with high quality of governance ratings adopt Sarbox more quickly and readily than others, and experience improved financial performance. The implications for governance research and management practice are discussed.
Keywords
corporate governance, legal and regulatory arenas of business, Sarbanes-Oxley Act of 2002, Altman Z, innovation research, institutional theory
Rights
© The Author(s). Kelvin Smith Library provides access for non-commercial, personal, or research use only. All other use, including but not limited to commercial or scholarly reproductions, redistribution, publication or transmission, whether by electronic means or otherwise, without prior written permission is strictly prohibited.
Department/Center
Design & Innovation
Recommended Citation
Ettner, Larry W., "Corporate Governance in the Era of Sarbanes-Oxley: Regulation, Governance, and Performance" (2006). Student Scholarship. 149.
https://commons.case.edu/studentworks/149