The effects of the Blue Ribbon Committee and the Sarbanes Oxley Act of 2002 on the characteristics of the audit committees and the board of directors.

This study investigates if and to what extent corporations have responded to the Blue Ribbon Committee’s recommendations and the requirements of the Sarbanes Oxley Act of 2002 by analyzing characteristic changes in corporate audit committees and the board of directors. We used data from proxy statements to perform descriptive analysis of trends and changes of the audit committee and the board of directors by using data collected prior to, and then subsequent to, the implementation of the Blue Ribbon Committee recommendations and the requirements of the Sarbanes Oxley Act of 2002. The study analyzed data ranging from fiscal years 1996 to 2005. The data included information from approximately 1,400 corporations that included characteristics of both the audit committee and the board of directors. Our analysis shows that both corporate audit committees and board of directors have changed to meet the characteristic recommendations (such as size and independence requirements) of the Blue Ribbon Committee and the similar requirement of the Sarbanes Oxley Act of 2002. The statistical analysis illustrates that the changes brought by the requirements of the Sarbanes Oxley Act were much more remarkable than changes which occurred subsequent to the recommendations of the Blue Ribbon Committee. This study provides empirical evidence on the effects of the new rules set forth by the Blue Ribbon Committee recommendations and the Sarbanes Oxley Act requirements which were both intended to improve the effectiveness of the corporate audit committees and the board of directors. This paper should be of value to regulators, board of directors and audit committees.