Corporate Governance Regulation: How Poor Management Is Destroying the Global Economy

Chapter 4

CEO Perception^a

Summary

Following the collapse of Enron and several other leading global firms, U.S. legislators responded swiftly with the Sarbanes-Oxley Act of 2002, a stringent rules-based system widely considered the most comprehensive economic regulation since the New Deal. Research suggests the law may produce serious unintended harmful consequences, resulting in a call for further research to evaluate its impact upon firms. However, the law's impact upon CEO perception is potentially more relevant than its actual costs, as this factor can be expected to directly influence how firms respond to the new law.

This paper contributes to both literature and practice in several ways. First, it conducts a review and analysis of multiple literatures to develop a comprehensive understanding of Sarbanes-Oxley and its potential impact upon firms. Second, CEO perception of the law is evaluated using a random sample survey of Fortune 500 CEOs (n = 206), and the results are discussed in detail. This is the first study to focus explicitly on CEO perceptions of this important law, and is likely to be useful to managers, policymakers, and regulators alike.

Introduction

After the collapse of Enron and reports of accounting fraud at WorldCom, HealthSouth, and other leading firms, Congress enacted the Sarbanes-Oxley Act of 2002, widely considered the most comprehensive economic regulation since the New Deal.¹ Past research has questioned whether the law was necessary, while there is ...