The Effect of the Sarbanes-Oxley Act on CEO Pay for Luck

Teodora Paligorova
According to the rent-extraction hypothesis, weak corporate governance allows entrenched CEOs to capture the pay-setting process and benefit from events outside of their control – get paid for luck. In this paper, I find that the independence requirement imposed on boards of directors by the Sarbanes-Oxley Act of 2002 (SOX), together with the governance regulations subsequently introduced by stock exchanges, affects CEO pay structure. In firms whose corporate boards were originally less independent, and thus...
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