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

Posted: 18 Mar 2008  

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); University of Pennsylvania - Wharton Financial Institutions Center; CESifo Research Network

Alexander J. Triantis

University of Maryland - Robert H. Smith School of Business

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 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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Chicago, IL 60637
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773-834-1996 (Phone)

HOME PAGE: http://faculty.chicagobooth.edu/christian.leuz/

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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HOME PAGE: http://www.nber.org

European Corporate Governance Institute (ECGI)

Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

University of Pennsylvania - Wharton Financial Institutions Center

3641 Locust Walk
Philadelphia, PA 19104-6218
United States

CESifo Research Network

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Munich, DE-81679
Germany

Alexander J. Triantis

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

Department of Finance
College Park, MD 20742-1815
United States
301-405-2246 (Phone)
301-314-9157 (Fax)

Tracy Yue Wang

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

19th Avenue South
Minneapolis, MN 55455
United States

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