Firm Risk and Proxy Fights: Evidence from SOX

Fang Chen, Jian Huang, Han Yu

Abstract


The Sarbanes Oxley Act of 2002 (SOX) is documented to curb executive risk-taking and firm risk. Utilizing SOX as an exogenous shock on firm risk, we find that proxy fight threats are positively related to a firm’s total risk and idiosyncratic risk. Specifically, although firm risk generally decreases post-SOX, high proxy fight threats mitigate this change in firm risk. We also find that although firms adopt more conservative policies such as decreasing their leverage and payout post-SOX, these changes are mitigated by proxy fight threats. In sum, our findings indicate that proxy fights act as an external disciplinary mechanism, encourage executive risk-taking, and increase firm risk.


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DOI: https://doi.org/10.5430/afr.v7n2p96

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Accounting and Finance Research
ISSN 1927-5986 (Print)   ISSN 1927-5994 (Online)

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