The Impact of the Sarbanes-Oxley Act on Shareholders and Managers of Foreign Firms

Abstract:     
Existing evidence suggests that the Sarbanes-Oxley Act (SOX) may be beneficial to U.S. investors, but that foreign firms are perhaps less likely to list in the U.S. after SOX. This raises the question of whether foreign firms avoid listing in the U.S. after SOX because the Act imposes unnecessary costs upon firms. The objective of this paper is to reconcile the U.S. and international evidence by distinguishing between the effect of SOX on controlling shareholders and managers of foreign firms and the effect on minority investors of these firms. Our results suggest that insiders of foreign firms believe that the regulation makes the extraction of value from minority investors more difficult and costly for them. Outside investors in foreign firms, on the other hand, seem on average to believe that SOX is beneficial to them. The combination of these results reconciles the existing U.S. and international evidence regarding SOX.

Number of Pages in PDF File: 38

Keywords: Sarbanes-Oxley, international listings, regulation

JEL Classification: G3, G18

Accepted Paper Series