The anticorruption efficacy of the sarbanes-oxley act: examining the impact on fraud, independence, and turnover

honors thesisDavid Eccles School of BusinessFinanceYihui PanThis paper investigates the effect of the anticorruption 2002 Sarbanes-Oxley Act (SOX) on corporate governance characteristics like board independence and, by extension, on executive turnover and other corporate reactions to fraud. Specifically, I compare fraud cases pre- and post-SOX--controlling for variables like firm size and industry--to determine how corporate governance and reactions to fraud changed with the new legislation. I find that board independence increased, the number of fraud cases per year declined, and the percentage of executive turnover increased in the years following SOX. Further, the most significant determinants of the duration of financial misconduct and executive turnover are a) board size, b) if the firm's average independence is above 75%, and c) if the firm is in the Consumer Nondurables industry. My results suggest that SOX was effective at increasing independence and discouraging fraud by bolstering executive consequences