Why Do Firms Go Dark? Causes and Economic Consequences of Voluntary SEC Deregistrations

Posted: 18 Mar 2008

See all articles by Christian Leuz

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Leibniz Institute SAFE; European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); CESifo Research Network

Alexander J. Triantis

University of Maryland - Robert H. Smith School of Business; Johns Hopkins University - Carey Business School

Tracy Yue Wang

University of Minnesota - Twin Cities - Carlson School of Management

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Abstract

We examine a comprehensive sample of going-dark deregistrations where companies cease SEC reporting, but continue to trade publicly. We document a spike in going dark that is largely attributable to the Sarbanes-Oxley Act. Firms experience large negative abnormal returns when going dark. We find that many firms go dark due to poor future prospects, distress and increased compliance costs after SOX. But we also find evidence suggesting that controlling insiders take their firms dark to protect private control benefits and decrease outside scrutiny, particularly when governance and investor protection are weak. Finally, we show that going dark and going private are distinct economic events.

Keywords: Going private, Disclosure, Sarbanes-Oxley Act, Deregistration, Private control benefits, Pink sheets, Liquidity, Stock market reactions

JEL Classification: G18, G38, K22, G39, M41, M45, M44, G14

Suggested Citation

Leuz, Christian and Triantis, Alexander J. and Triantis, Alexander J. and Wang, Tracy Yue, Why Do Firms Go Dark? Causes and Economic Consequences of Voluntary SEC Deregistrations. Journal of Accounting & Economics (JAE), 2008, Available at SSRN: https://ssrn.com/abstract=1106279

Christian Leuz (Contact Author)

University of Chicago - Booth School of Business ( email )

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Alexander J. Triantis

University of Maryland - Robert H. Smith School of Business ( email )

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Johns Hopkins University - Carey Business School ( email )

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Tracy Yue Wang

University of Minnesota - Twin Cities - Carlson School of Management ( email )

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