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Abstract:
This study examines firms surrounding the Sarbanes-Oxley Section 404 market value compliance threshold. We predict that management will behave opportunistically to affect their firm's market value in order to temporarily fall below the threshold. We find evidence that sample firms reduce their market value only during threshold measurement quarters, while control firms experience increasing market value. For threshold firms, dampened stock returns and insider trading function to reduce float. We consider this evidence of regulatory avoidance, confirming managers' beliefs regarding the net costs of the regulation. Additionally, we find that firms with the ability and incentives to avoid Section 404 do so.

Sarbanes-Oxley Section 404, Regulatory Avoidance, Small Firms