The Impact of the Sarbanes-Oxley Act on the Dual-Class Voting Premium

AbstractWe examine the impact of corporate governance laws on the private benefits of control, using the enactment of the Sarbanes-Oxley Act of 2002 (SOX) as a natural quasi experiment. We find a large decline in the average voting premium of US dual-class firms targeted by major SOX provisions that enhance boards’ independence, improve internal controls, and increase litigation risks. The targeted firms also improve the efficiency of investment, cash management, and chief executive officers’ compensation relative to firms not targeted by SOX. Overall, the evidence suggests that SOX is effective in curbing the private benefits of control.