A Lobbying Approach to Evaluating the Sarbanes-Oxley Act of 2002
Yael V. Hochberg
National Bureau of Economic Research (NBER); Rice University - Jesse H. Jones Graduate School of Business
Northwestern University - Kellogg School of Management - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)
CEPR Discussion Paper No. DP6201
We evaluate the net benefits of the Sarbanes-Oxley Act (SOX) for shareholders by studying the lobbying behaviour of investors and corporate insiders to affect the final implemented rules under the Act. Investors lobbied overwhelmingly in favour of strict implementation of SOX, while corporate insiders and business groups lobbied against strict implementation. We identify the firms most affected by the law as those whose insiders lobbied against strict implementation, and compare their returns to the returns of less affected firms. Cumulative returns during the four and a half months leading up to passage of SOX were approximately 10 percent higher for corporations whose insiders lobbied against one or more of the SOX disclosure-related provisions than for similar non-lobbying firms. Analysis of returns in the post-passage implementation period indicates that investors' positive expectations with regards to the effects of the law were warranted for the enhanced disclosure provisions of SOX.
Number of Pages in PDF File: 68
Keywords: Corporate Governance, Sarbanes Oxley Act
JEL Classification: G34, K22
Date posted: May 22, 2008
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