A comparative review of corporate-governance literature: evidence from NASDAQ and NYSE companies

Dishant Pandya; Ian A. Van Deventer

doi:10.55429/ijabf.v4i2.213

Authors

Dishant Pandya College of Business, Bellevue University, Bellevue, Nebraska, United States of America
Ian A. Van Deventer College of Business, Spalding University, Louisville, Kentucky, United States of America https://orcid.org/0009-0000-0305-4600

DOI:

https://doi.org/10.55429/ijabf.v4i2.213

Keywords:

Agency theory, Board-independence mandate, NASDAQ, NYSE, Operating performance

Abstract

In this review, we survey the literature on board independence, with particular emphasis on the long-term effects of the United States Securities and Exchange Commission’s 2003 board-independence mandate. Grounded in agency theory, the mandate was introduced to strengthen board oversight and improve operating performance following a series of major corporate scandals. Although board independence is widely promoted as a mechanism for aligning managerial behavior with shareholder interests, empirical studies have produced mixed evidence regarding its effectiveness, with outcomes often varying across firms and regulatory environments. To examine these dynamics more closely, we highlight a series of studies that provide a rigorous empirical evaluation of the mandate’s impact on firms listed on NASDAQ and NYSE. The review emphasizes the conditional nature of board-independence reforms and the roles of enforcement mechanisms and firm characteristics in shaping governance outcomes. These findings suggest that governance policies may be more effective when they account for institutional differences and firm-specific conditions rather than relying solely on uniform structural mandates.

References

Abdullah, H., & Tursoy, T. (2023). The Effect of Corporate Governance on Financial Performance: Evidence From a Shareholder-Oriented System. Interdisciplinary Journal of Management Studies, 16(1), 79–95. https://doi.org/10.22059/ijms.2022.321510.674798

Adams, R. B., Hermalin, B. E., & Weisbach, M. S. (2010). The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey. Journal of Economic Literature, 48(1), 58–107. https://doi.org/10.1257/jel.48.1.58

Al Koni, S., Najjar, M., Nour, A., & Nabulsi, M. (2025). Analysing the Effectiveness of Board Governance in Mitigating Agency Costs: Lessons from Industrial Firms in Emerging Markets. Al-Balqa Journal for Research and Studies, 28(1), 11–34. https://doi.org/10.35875/pd809d10

Angrist, J. D., & Pischke, J.-S. (2009). Mostly harmless econometrics: An empiricist’s companion. Princeton university press.

Arora, A. (2024). Board Leadership Structure and Firm Performance: Moderating Effects of Board Independence. Journal of Emerging Market Finance, 23(1), 32–55. https://doi.org/10.1177/09726527231190690

Bebchuk, L. A., & Fried, J. M. (2005). Pay Without Performance: Overview of the Issues. Journal of Applied Corporate Finance, 17(4), 8–23. https://doi.org/10.1111/j.1745-6622.2005.00056.x

Berger, P. G., Ofek, E., & Yermack, D. L. (1997). Managerial Entrenchment and Capital Structure Decisions. The Journal of Finance, 52(4), 1411–1438. https://doi.org/10.1111/j.1540-6261.1997.tb01115.x

Bhagat, S., & Black, B. S. (1998). The Non-Correlation Between Board Independence and Long-Term Firm Performance. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.133808

Bhagat, S., & Bolton, B. (2008). Corporate governance and firm performance. Journal of Corporate Finance, 14(3), 257–273. https://doi.org/10.1016/j.jcorpfin.2008.03.006

Black, B. S., Jang, H., & Kim, W. (2006). Does Corporate Governance Predict Firms’ Market Values? Evidence from Korea. Journal of Law, Economics, and Organization, 22(2), 366–413. https://doi.org/10.1093/jleo/ewj018

Boivie, S., Bednar, M. K., Aguilera, R. V., & Andrus, J. L. (2016). Are Boards Designed to Fail? The Implausibility of Effective Board Monitoring. The Academy of Management Annals, 10(1), 319–407. https://doi.org/10.1080/19416520.2016.1120957

Chen, X., Cheng, Q., & Wang, X. (2015). Does increased board independence reduce earnings management? Evidence from recent regulatory reforms. Review of Accounting Studies, 20(2), 899–933. https://doi.org/10.1007/s11142-015-9316-0

Cheng, S. (2008). Board size and the variability of corporate performance. Journal of Financial Economics, 87(1), 157–176. https://doi.org/10.1016/j.jfineco.2006.10.006

Chhaochharia, V., & Grinstein, Y. (2007). Corporate Governance and Firm Value: the Impact of the 2002 Governance Rules. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.556990

Cohen, D. A., Dey, A., & Lys, T. Z. (2008). Real and Accrual-Based Earnings Management in the Pre- and Post-Sarbanes-Oxley Periods. The Accounting Review, 83(3), 757–787. https://doi.org/10.2308/accr.2008.83.3.757

Coles, J., Daniel, N., & Naveen, L. (2008). Boards: Does one size fit all☆. Journal of Financial Economics, 87(2), 329–356. https://doi.org/10.1016/j.jfineco.2006.08.008

Doidge, C., Andrewkarolyi, G., & Stulz, R. (2007). Why do countries matter so much for corporate governance?☆. Journal of Financial Economics, 86(1), 1–39. https://doi.org/10.1016/j.jfineco.2006.09.002

Duchin, R., Matsusaka, J. G., & Ozbas, O. (2010). When are outside directors effective?☆. Journal of Financial Economics, 96(2), 195–214. https://doi.org/10.1016/j.jfineco.2009.12.004

Faleye, O., Hoitash, R., & Hoitash, U. (2011). The costs of intense board monitoring. Journal of Financial Economics, 101(1), 160–181. https://doi.org/10.1016/j.jfineco.2011.02.010

Faleye, O., Hoitash, R., & Hoitash, U. (2018). Industry expertise on corporate boards. Review of Quantitative Finance and Accounting, 50(2), 441–479. https://doi.org/10.1007/s11156-017-0635-z

Fama, E. F., & Jensen, M. C. (1983). Separation of Ownership and Control. The Journal of Law and Economics, 26(2), 327. https://doi.org/10.1086/467038

Gordon, J. N. (2006). The Rise of Independent Directors in the United States, 1950-2005: Of Shareholder Value and Stock Market Prices. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.928100

Guo, L., Lach, P., & Mobbs, S. (2015). Tradeoffs between Internal and External Governance: Evidence from Exogenous Regulatory Shocks. Financial Management, 44(1), 81–114. https://doi.org/10.1111/fima.12066

Gupta, P., Kennedy, D., & Weaver, S. (2009). Corporate governance and firm value: Evidence from Canadian capital markets. Corporate Ownership and Control, 6(3), 293–307. https://doi.org/10.22495/cocv6i3c2p4

Hermalin, B. E., & Weisbach, M. S. (1991). The Effects of Board Composition and Direct Incentives on Firm Performance. Financial Management, 20(4), 101–112. https://doi.org/10.2307/3665716

Hermalin, B., & Weisbach, M. (2003). Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature. Economic Policy Review, 9(1), 7–26. https://www.newyorkfed.org/research/epr/03v09n1/0304herm.html

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X

Klein, A. (1998). Firm Performance and Board Committee Structure. The Journal of Law and Economics, 41(1), 275–304. https://doi.org/10.1086/467391

Linck, J. S., Netter, J. M., & Yang, T. (2005). The Determinants of Board Structure. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.729935

Panda, B., & Leepsa, N. M. (2017). Agency theory: Review of Theory and Evidence on Problems and Perspectives. Indian Journal of Corporate Governance, 10(1), 74–95. https://doi.org/10.1177/0974686217701467

Pandya, D., & Bathala, C. (2013). Board of Directors and Exchange Requirements: Operating Performance of Traditionally Insider Controlled Boards. Journal of Applied Financial Research, 1, 88–102.

Pandya, D., & Van Deventer, I. A. (2021a). The Effect of Strengthened Corporate Governance on Firm Performance in the United States. Journal of Accounting, Business and Finance Research, 12(2), 26–31. https://doi.org/10.20448/2002.122.26.31

Pandya, D., & Van Deventer, I. A. (2021b). The Effect of Strengthened Monitoring and Oversight Mechanisms on U.S. Firms Listed on NASDAQ. Research Journal of Finance and Accounting, 12(16), 15–20. https://doi.org/10.7176/RJFA/12-16-02

Pandya, D., & Van Deventer, I. A. (2024). The Effect of Board Composition on Long-Term Firm Performance: NASDAQ versus NYSE. Journal of Finance and Accounting, 8(8), 101–108. https://doi.org/10.53819/81018102t4294

Roberts, M. R., & Whited, T. M. (2013). Endogeneity in Empirical Corporate Finance. In G. M. Constantinides, M. Harris, & R. M. Stulz (Eds.), Handbook of the Economics of Finance (Vol. 2, pp. 493–572). Elsevier. https://doi.org/https://doi.org/10.1016/B978-0-44-453594-8.00007-0

Romano, R. (2005). The Sarbanes-Oxley Act and the Making of Quack Corporate Governance. The Yale Law Journal, 114(7), 1521–1611. http://www.jstor.org/stable/4135760

Rutledge, R. W., Karim, K. E., & Lu, S. (2016). The Effects of Board Independence and CEO Duality on Firm Performance: Evidence from the NASDAQ-100 Index with Controls for Endogeneity. Journal of Applied Business and Economics, 18(2), 49–71. https://articlegateway.com/index.php/JABE/article/view/838

Wang, C., Xie, F., & Zhu, M. (2015). Industry Expertise of Independent Directors and Board Monitoring. Journal of Financial and Quantitative Analysis, 50(5), 929–962. https://doi.org/10.1017/S0022109015000459

Westphal, J. D., & Zajac, E. J. (1998). The Symbolic Management of Stockholders: Corporate Governance Reforms and Shareholder Reactions. Administrative Science Quarterly, 43(1), 127. https://doi.org/10.2307/2393593

Zogning, F. (2017). Agency Theory: A Critical Review. European Journal of Business and Management, 9, 1–8.