The Impact of the Sarbanes-Oxley Act on the Cost of Going Public

BuR Business Research Journal, Vol. 4, No. 2, pp. 125-147, December 2011

23 Pages Posted: 3 Jan 2012

See all articles by Christoph Kaserer

Christoph Kaserer

Technische Universität München (TUM)

Alfred Mettler

University of Miami - Department of Finance

Stefan Obernberger

Erasmus University Rotterdam - Erasmus School of Economics; Erasmus Research Institute of Management (ERIM)

Date Written: December 19, 2011

Abstract

This paper examines the impact of the Sarbanes-Oxley Act (SOX), a legal framework intended to increase transparency and accountability of listed companies, on the cost of going public in the US. We expect SOX to increase the direct cost of going public, but decrease the underpricing because of reduced asymmetric information. Our main results corroborate these hypotheses. First, we find an increase in the cost of going public of 90 bp of gross proceeds. Second, we record a reduction in underpricing of 6 pp, which is related to a reduced offer price adjustment. This supports our hypothesis that SOX represents a mechanism to reduce asymmetric information.

Keywords: asymmetric information, auditing and legal fees, bookbuilding, IPO, flotation cost, going public, partial adjustment phenomenon, propensity score matching, selection bias, SOX, underpricing, underwriting fees

JEL Classification: G18, G24, G32

Suggested Citation

Kaserer, Christoph and Mettler, Alfred and Obernberger, Stefan, The Impact of the Sarbanes-Oxley Act on the Cost of Going Public (December 19, 2011). BuR Business Research Journal, Vol. 4, No. 2, pp. 125-147, December 2011, Available at SSRN: https://ssrn.com/abstract=1978653

Christoph Kaserer (Contact Author)

Technische Universität München (TUM) ( email )

Arcisstr. 21
Munich, D-80290
Germany
+49 89 289 25489 (Phone)
+49 89 289 25488 (Fax)

HOME PAGE: http://www.cefs.de

Alfred Mettler

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-9394 (Phone)

Stefan Obernberger

Erasmus University Rotterdam - Erasmus School of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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