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

Review of Finance, Forthcoming

38 Pages Posted: 2 Oct 2007 Last revised: 24 Feb 2013

See all articles by Jefferson Duarte

Jefferson Duarte

Rice University

Katie Kong

University of Washington - Department of Finance and Business Economics

Lance A. Young

University of Washington - Department of Finance and Business Economics

Stephan Siegel

University of Washington - Michael G. Foster School of Business; CESifo

Date Written: February 22, 2013

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.

Keywords: Sarbanes-Oxley, international listings, regulation

JEL Classification: G3, G18

Suggested Citation

Duarte, Jefferson and Kong, Katie and Young, Lance A. and Siegel, Stephan, The Impact of the Sarbanes-Oxley Act on Shareholders and Managers of Foreign Firms (February 22, 2013). Review of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1062641 or http://dx.doi.org/10.2139/ssrn.1062641

Jefferson Duarte (Contact Author)

Rice University ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States
713.3486137 (Phone)

Katie Kong

University of Washington - Department of Finance and Business Economics ( email )

Box 353200
Seattle, WA 98195
United States

Lance A. Young

University of Washington - Department of Finance and Business Economics ( email )

Box 353200
Seattle, WA 98195
United States

Stephan Siegel

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

HOME PAGE: http://faculty.washington.edu/ss1110/

CESifo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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