The effects of corporate governance

Recent corporate scandals suggest a breakdown in internal controls and the lack of adequate corporate governance mechanisms. The research examines the causes and consequences of cooperate governance weaknesses reported under Section 302 of SOX. The study further examined whether the managerial labor market imposes penalties on top management, audit committees, and boards of directors for internal control failures. It found that corporate governance weakness in banks has a significantly higher turnover of their audit committee members and outside directors than the control firms following the corporate governance weaknesses detection. Audit committee members and outside directors in the corporate governance weaknesses banks also lose more outside directorships than their counterparts in the control firms. The results indicate that corporate governance weaknesses banks experience greater improvement in their governance structures than the control firms.