Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday, July 16, 2010
Editor's Note: This post comes to us from Xue Wang of the Accounting Department at Emory University.
In the paper, Increased Disclosure Requirements and Corporate Governance Decisions: Evidence from Chief Financial Officers in the Pre- and Post-Sarbanes Oxley Periods, which is forthcoming the Journal of Accounting Research, I examine how the new internal control disclosure requirements mandated by SOX affect annual corporate governance decisions regarding CFOs. The “disclosure of type” hypothesis argues that increased disclosures on internal controls mitigate information asymmetry between the board and the CFO by credibly disclosing the quality of firms’ internal controls, thus distinguishing good CFOs from bad ones. As a result, it predicts lower pay and higher turnover for low-quality CFOs.