The Sarbanes-Oxley Act: Costs and Trade offs Relating to International Application and Convergence

Abstract:     
Demand for international capital increased with widespread privatization efforts in the 1980s and 1990s stemming from the collapse of Communism in the former Soviet Union and Eastern Europe and from economic reform in China, Latin America, and Southeast Asia.

The Sarbanes-Oxley Act, perceived as the most important piece of legislation affecting public companies since the securities acts of the l930s, was enacted in the wake of several public companies and seeks to protect investors by improving corporate disclosures made pursuant to the securities laws. Unlike securities legislation and regulation in the recent past that accommodated or exempted foreign private issuers, the Act largely ignores the variations of foreign securities laws and extends the reach of U.S. law into many aspects of the internal affairs and governance regimes of foreign firms and their auditors. With the passage of the Act, fund sourcing cost-benefit analysis has therefore changed for foreign firms seeking access to U.S. capital markets. The costs associated with a U.S. listing may now seem disproportionate to the benefits. Aspects of this new cost benefit trade off and the implications for international standard setting and convergence are examined in this paper.

Keywords: Sarbanes-Oxley Act, international standard-setting

JEL Classifications: G15, G34, M49, K22

Accepted Paper Series