A Lobbying Approach to Evaluating the Sarbanes-Oxley Act of 2002

73 Pages Posted: 30 Apr 2009

See all articles by Yael V. Hochberg

Yael V. Hochberg

National Bureau of Economic Research (NBER); Rice University - Jesse H. Jones Graduate School of Business

Paola Sapienza

Northwestern University - Kellogg School of Management - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Annette Vissing-Jorgensen

National Bureau of Economic Research (NBER); University of California Berkeley, Haas School of Business

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Abstract

We evaluate the impact of the Sarbanes-Oxley Act (SOX) on shareholders by studying the lobbying behavior of investors and corporate insiders in order to affect the final implemented rules under the Act. Investors lobbied overwhelmingly in favor of strict implementation of SOX, while corporate insiders and business groups lobbied against strict implementation. We identify firms most affected by the law as those whose insiders lobbied against strict implementation. Such firms appear to be characterized by agency problems, rather than motivated by concerns over compliance costs. Cumulative stock returns during the five and a half months leading up to SOX passage were approximately 7 percent higher for corporations whose insiders lobbied against SOX disclosure-related provisions than for similar non-lobbying firms, consistent with an expectation that SOX would reduce agency problems. Analysis of returns in the post-passage implementation period suggests that investors’ positive expectations with regards to the effects of these provisions were warranted.

Suggested Citation

Hochberg, Yael V. and Sapienza, Paola and Vissing-Jorgensen, Annette, A Lobbying Approach to Evaluating the Sarbanes-Oxley Act of 2002. Available at SSRN: https://ssrn.com/abstract=1394631 or http://dx.doi.org/10.1111/j.1475-679X.2009.00321.x

Yael V. Hochberg (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
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Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
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Paola Sapienza

Northwestern University - Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States
847-491-7436 (Phone)
847-491-5719 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Annette Vissing-Jorgensen

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of California Berkeley, Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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