Sarbanes-Oxley and Corporate Risk-Taking

39 Pages Posted: 9 Mar 2008

See all articles by Leonce Bargeron

Leonce Bargeron

University of Kentucky - Gatton College of Business and Economics

Kenneth Lehn

University of Pittsburgh - Finance Group

Chad J. Zutter

University of Pittsburgh - Finance Group

Date Written: March 7, 2008

Abstract

This paper empirically examines whether the Sarbanes-Oxley Act of 2002 ("SOX") discourages risk-taking by publicly traded U.S. companies. Several provisions of SOX are likely to have this effect, including an expanded role for independent directors, an increase in director and officer liability, and rules related to internal controls. We find that several measures of risk-taking decline significantly for U.S. companies as compared with U.K. firms after SOX. The declines are related to several firm characteristics, including pre-SOX board structure, firm size, and R&D expenditures. In addition, the likelihood of initial public offerings ("IPOs") occurring in the U.S. versus the U.K. declined significantly after SOX, with the decline being significantly higher for R&D intensive industries. Overall, the evidence supports the proposition that SOX discourages risk-taking by public U.S. companies.

Keywords: Sarbanes-Oxley, Legislative policy, Corporate risk taking, Investment policy

JEL Classification: G1, G18, G30, G32, G38

Suggested Citation

Bargeron, Leonce and Lehn, Kenneth and Zutter, Chad J., Sarbanes-Oxley and Corporate Risk-Taking (March 7, 2008). Available at SSRN: https://ssrn.com/abstract=1104063 or http://dx.doi.org/10.2139/ssrn.1104063

Leonce Bargeron

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-4397 (Phone)

Kenneth Lehn (Contact Author)

University of Pittsburgh - Finance Group ( email )

372 Mervis Hall
Pittsburgh, PA 15260
United States
412-648-2034 (Phone)

Chad J. Zutter

University of Pittsburgh - Finance Group ( email )

352 Mervis Hall, Katz GSOB
University of Pittsburgh
Pittsburgh, PA 15260
United States
412-648-2159 (Phone)
412-648-1693 (Fax)

HOME PAGE: http://www.pitt.edu/~czutter/

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
856
Abstract Views
3,571
rank
29,969
PlumX Metrics