Do Variations in the Strength of Corporate Governance Still Matter? A Comparison of the Pre- and Post-regulation Environment
Date
2014-07Author
Harp, Nancy
Myring, Mark
Shortridge, Rebecca Toppe
Metadata
Show full item recordAbstract
Corporate scandals brought the issue of corporate
governance to the forefront of the agendas of lawmakers
and regulators in the early 2000s. As a result,
Congress, the New York Stock Exchange, and the NASDAQ
enacted standards to improve the quality of corporate
governance, thereby enhancing the quantity and quality of
disclosures by listed companies. We investigate the relationship
between corporate governance strength and the
quality of disclosures in pre- and post-regulation time
periods. If cross-sectional differences in corporate governance
policies affect the quality of financial disclosures,
the quality of information available to analysts varies with
such policies. Specifically, higher quality disclosures,
produced as a result of strong corporate governance, should
lead to more accurate and less dispersed analysts’ forecasts.
Our analysis suggests that voluntary implementation of
stronger corporate governance enhanced the quality of
disclosures in the pre-regulation period; however, exceeding
current corporate governance standards does not appear
to result in higher quality disclosures post-regulation.
These results suggest that SOX and the stronger regulations
enacted by U.S. exchanges were effective in reducing
variation in the quality of financial information available to
investors.