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The impact of the Sarbanes-Oxley Act on the Cost of Going Public


Stefan Obernberger


University of Mannheim - Department of Business Administration

Christoph Kaserer


Technische Universität München (TUM)

Alfred Mettler


Georgia State University

July 2009

EFMA 2008 Prague Meetings Paper

Abstract:     
This paper examines the impact of SOX on the total cost and the component cost of going public. First, we document a statistically significant increase in non-underwriting expenses of 0.8 percentage points after the introduction of SOX, which is mostly due to an increase in accounting and legal fees. Because of the fixed-cost character of this component cost, smaller issues show a much greater percentage increase than larger ones. Second, we demonstrate a highly significant reduction in underpricing in the magnitude of about 4 percentage points. This result is size-independent, and in accordance with the view that SOX reduces adverse selection costs. Third, we find that on average the total flotation costs have decreased between 3 and 3.5 percentage points in the post-SOX period. However, for smaller companies the reduction in underpricing does not compensate anymore for the increase in non-underwriting expenses (i.e., accounting and legal fees). Therefore, the positive impact of SOX on the costs of going public decreases with smaller offering sizes.

Number of Pages in PDF File: 23

Keywords: Sarbanes-Oxley, SOX, IPO, Going Public, Adverse Selection

JEL Classification: G30, G34

working papers series


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Date posted: June 18, 2008 ; Last revised: July 31, 2009

Suggested Citation

Obernberger, Stefan, Kaserer, Christoph and Mettler, Alfred, The impact of the Sarbanes-Oxley Act on the Cost of Going Public (July 2009). EFMA 2008 Prague Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1147138 or http://dx.doi.org/10.2139/ssrn.1147138

Contact Information

Stefan Obernberger (Contact Author)
University of Mannheim - Department of Business Administration ( email )
D-68131 Mannheim
Germany
Christoph Kaserer
Technische Universität München (TUM) ( email )
Arcisstr. 21
Munich, D-80290
Germany
+49 89 289 25489 (Phone)
+49 89 289 25488 (Fax)
HOME PAGE: http://www.cefs.de
Alfred Mettler
Georgia State University ( email )
University Plaza
Atlanta, GA 30303-3083
United States
404-413-7327 (Phone)
404-413-7312 (Fax)
Feedback to SSRN (Beta)


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