The Sarbanes-Oxley Act and the Choice of Bond Market By Foreign Firms

Abstract:     
This paper examines the impact of the Sarbanes-Oxley Act (SOX) on firms' choice of bond market. Foreign firms issuing U.S. dollar denominated bonds provide a unique sample. This paper finds that: (1) after SOX these firms issued bonds more frequently in the Eurodollar bond market and the Rule 144A bond market than in the U.S. public bond market, and (2) firms operating in a good information environment, originating in countries with poor protection of investors, issuing bonds of large size, and offering high-yield bonds were more likely to choose the U.S. public bond market in the post-SOX period than in the pre-SOX period. Overall, these findings are consistent with a shift in the expected costs and benefits of choosing the U.S. public bond market following SOX. This paper provides the first evidence of how SOX has influenced debt financing decisions and altered capital flows across international bond markets.

Keywords: The Sarbanes-Oxley Act , the Yankee bond market, the Rule144A bond market, the Eurodollar bond market

Working Paper Series