Corporate Networks and Social Scandals: Private and Regulatory Influences on Executive Behavior

Nicholas Bormann

Advisor: Alex T Tabarrok, PhD, Department of Economics

Committee Members: Thomas Stratmann, Garett Jones

Carow Hall, Conference Room
June 08, 2015, 11:00 AM to 08:00 AM


Decisions by corporate executives are entangled in public regulation, private torts, and social influence. This dissertation takes an example of each to trace the effects of formal and informal policy changes on the behavior of corporate board members, integrating the study of corporate governance, law and economics, and social ties between businesses as they relate to regulatory policy. In my first chapter, I examine private lawsuits against directors and officers following the passage of the Sarbanes Oxley Act (2002). Sarbanes-Oxley created new responsibilities for corporate boards and expanded tort liability for corporate directors. I find that while the number of lawsuits increased after Sarbanes-Oxley, the probability of success and amount of payment decreased. This change influenced the deterrent effect of private torts. In the second chapter, using social network analysis I track changes in the structure of interlocking board networks following Sarbanes-Oxley. This Act required more outside directors to serve on corporate boards, hoping to increase accountability to shareholders. After Sarbanes-Oxley, I find that outside directors are relatively marginalized within the overall network of interlocking directorates, and that companies with less influential outside directors are less likely to have successful shareholder proposals which challenge management decisions. In the third chapter, I study the after-effects of a 2009 insider trading scandal which forced the resignation of several prominent corporate insiders. I find that firms associated with the scandal lose network connections, as do other companies with ties to the affected firms. These results suggest that companies make strategic decisions as to which interlocking directorates to maintain or dissolve. Further, I examine the effects of these network changes on market outcomes.