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Taking advantage of the 2008 Sichuan Great Earthquake as a natural experiment, the purpose of this paper is to examine the motives and effects of corporate donations by focusing on how firm ownership identity as the first-order governance mechanism affects the motives and effects of disaster relief donations.

The authors conduct regressions and market event studies, and use matching to address the confounding effects of differences in firm characteristics.

The authors hypothesize that private firms that are better governed than state-owned enterprises (SOEs) are more likely to donate for value maximization. Consistent with this, the authors find that private firms are more likely to donate to the 2008 Sichuan earthquake and donate more than SOEs. The effects of secondary governance variables in the donation determinant models (e.g. board independence and managerial ownership) are more consistent with the value maximization argument. While short-term market reaction to donation announcement is not significant for private firms, it is lower when SOEs make a large donation. Consistent with the hypothesis, the authors find that over the 24–36 months following the donation, private donors realize a higher abnormal stock return.

The study contributes to the debate over the merits/costs of corporate donations and helps better understand how SOEs and private firms (particularly family-owned firms) differ in their governance and financial decision-making.

Both managers from private firms and SOEs can use the findings of this study to better guide their donation and other philanthropic decisions.

This study is the first to examine both the motives and effects of corporate donations by both private and SOEs taking advantage of the 2008 Sichuan, thereby significantly extending prior related studies.

This paper aims to study the audit committee (AC) provisions of the Sarbanes‐Oxley Act with the objective of identifying implementation issues and to recommend firm and board actions to remedy the problems that are identified.

Standard economic theory was used to analyze the incentives and abilities of AC members, relying on results in the financial economics literature regarding outside director behavior.

The framework predicts that the new provisions in conjunction with the new regulatory/liability environment will increase risk‐aversion in directors belonging to ACs. This, in turn, creates an incentive alignment problem between AC members and shareholders leading to sub‐optimal decisions with regard to the audit. In particular, it is noted that demand will increase for high‐quality audits irrespective of cost considerations. The analysis also indicates that director labor markets will not mitigate this sub‐optimality.

Because Sarbanes‐Oxley places direct responsibility for the audit in the hands of the AC, interventions by managers who may have incentives more aligned with those of shareholders are not considered. In a real world setting, managers may be playing a constructive role behind the scenes.

Specific action items to mitigate the problems are suggested. These steps have the combined effect of: increasing compensation for AC members (to support the additional workload); decreasing their risk exposure (to facilitate incentive alignment); and providing additional resources (to ensure efficiency of oversight).

In studying the AC provisions of the Sarbanes‐Oxley Act, this paper has gone someway towards identifying implementation issues and recommending firm and board actions to remedy the identified problems.