Using Sarbanes-Oxley Act (SOX) as a natural experiment, we find evidence consistent with an optimal level of board independence for credit ratings. We test two hypotheses that could explain this optimality: information cost hypothesis (ICH) that the effectiveness of independent boards increases with the private benefits of the management, and decreases with the cost of monitoring and advising, and the shareholder empowering hypothesis (SEH) that the empowering of shareholders through stronger

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... ard independence reduces the agency cost of equity but exacerbates the agency cost of debt. We find mixed evidence supporting ICH, and stronger evidence supporting SEH.