Voluntary Corporate Governance, Proportionate Regulation and Small Firms: Evidence from Venture Issuers

Abstract

Following the implementation of the Sarbanes-Oxley Act, scholars argued that one-size-fits-all corporate governance imposed disproportionately high compliance costs on small businesses, weakening their competitiveness vis-à-vis larger firms. As an alternative, these critics contended that “proportionate regulation,” in the form of regulatory exemptions for small firms, is an appropriate means of minimizing disclosure obligations. While at first glance it may seem that small firms would seek to comply with less costly governance standards, is it possible that they would nonetheless voluntarily adhere to stricter standards? Our empirical findings suggest that proportionate regulation is a misguided regulatory approach given the voluntary adoption of corporate governance mechanisms among small firms.

Keywords: ventures, Sarbanes-Oxley Act (SOX)