Investment opportunity set, board independence, and firm performance: The impact of the Sarbanes-Oxley Act

Purpose -The purpose of this paper is to investigate the impact of Sarbanes-Oxley Act (SOX) on high growth firms’ corporate governance. Specially, the study examines whether there is a negative impact of SOX on the interactive effect of board independence and investment opportunity set on firm performance. Design/methodology/approach - Sample firms were selected from the Investor Responsibility Research Center Directors’ database. Both accounting- and market-based firm performance measures are used. Regressions are run to test the hypothesis. Findings -It was found that the impact of SOX on the interaction effect of board independence and investment opportunity set on firm performance is negative. Originality/value -The results suggest that the impact of SOX in corporate governance and regulatory environment mitigates the effect of board independence on the relationship between investment opportunity set and firm performance, consistent with the notion that the enactment of SOX increases monitoring costs of board governance especially for high-growth firms.