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http://ssrn.com/abstract=546626
 
 

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The Sarbanes-Oxley Act and Firms' Going-Private Decisions


Ellen Engel


University of Chicago Booth School of Business

Rachel M. Hayes


University of Utah - David Eccles School of Business

Xue Wang


Ohio State University - Fisher College of Business

May 6, 2004


Abstract:     
We investigate firms' going-private decisions in response to the passage of the Sarbanes-Oxley Act of 2002 (SOX). The Act has the potential to bring both benefits, in terms of more transparent disclosure and improvements in corporate governance, and costs, in terms of complying with the new regulation. We argue that firms go private in response to SOX only if the SOX-imposed costs to the firm exceed the SOX-induced benefits to shareholders, and this difference swamps the net benefit of being a public firm prior to the passage of SOX. By examining a sample of all going-private firms from 1998 to 2004, we find: (1) the quarterly frequency of going private has modestly increased after the passage of SOX; (2) the abnormal returns associated with the passage of SOX were positively related to firm size and share turnover; (3) smaller firms and firms with greater inside ownership have experienced higher going-private announcement returns in the post-SOX period compared to the pre-SOX period. Our empirical evidence is broadly consistent with the notion that SOX has affected firms' going-private decisions.

Number of Pages in PDF File: 39

Keywords: Corporate governance, Sarbanes-Oxley Act, Going-private transactions

JEL Classification: G38, G34, M41

working papers series


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Date posted: May 15, 2004  

Suggested Citation

Engel, Ellen and Hayes, Rachel M. and Wang, Xue, The Sarbanes-Oxley Act and Firms' Going-Private Decisions (May 6, 2004). Available at SSRN: http://ssrn.com/abstract=546626 or http://dx.doi.org/10.2139/ssrn.546626

Contact Information

Ellen Engel (Contact Author)
University of Chicago Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-0966 (Phone)
866-377-52152 (Fax)
Rachel M. Hayes
University of Utah - David Eccles School of Business ( email )
1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States
Xue Wang
Ohio State University - Fisher College of Business ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-688-1330 (Phone)
614-292-2118 (Fax)
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