Why Do Firms Go Dark? Causes and Economic Consequences of Voluntary SEC Deregistrations

70 Pages Posted: 24 Oct 2005 Last revised: 13 Feb 2011

See all articles by Christian Leuz

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Leibniz Institute SAFE; CESifo Research Network; Center for Financial Studies (CFS)

Alexander J. Triantis

University of Maryland - Robert H. Smith School of Business; Johns Hopkins University - Carey Business School

Tracy Yue Wang

University of Minnesota - Twin Cities - Carlson School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2008

Abstract

We examine a comprehensive sample of going-dark deregistrations where companies cease SEC reporting, but continue to trade publicly. We document a spike in going dark that is largely attributable to the Sarbanes-Oxley Act. Firms experience large negative abnormal returns when going dark. We find that many firms go dark due to poor future prospects, distress and increased compliance costs after SOX. But we also find evidence suggesting that controlling insiders take their firms dark to protect private control benefits and decrease outside scrutiny, particularly when governance and investor protection are weak. Finally, we show that going dark and going private are distinct economic events.

Keywords: SEC deregistration, Disclosure, Going private, Regulation, Private control

JEL Classification: G18, G38, K22, G39, M41, M45, M44, G14

Suggested Citation

Leuz, Christian and Triantis, Alexander J. and Triantis, Alexander J. and Wang, Tracy Yue, Why Do Firms Go Dark? Causes and Economic Consequences of Voluntary SEC Deregistrations (March 1, 2008). ECGI - Finance Working Paper No. 155/2007, AFA 2006 Boston Meetings Paper, Robert H. Smith School Research Paper No. RHS 06-045, Available at SSRN: https://ssrn.com/abstract=592421 or http://dx.doi.org/10.2139/ssrn.592421

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Alexander J. Triantis

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Johns Hopkins University - Carey Business School ( email )

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Tracy Yue Wang

University of Minnesota - Twin Cities - Carlson School of Management ( email )

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