SOX Section 404 and Corporate Innovation
60 Pages Posted: 8 Mar 2018
Date Written: February 23, 2018
This paper exploits a quasi-natural experiment to investigate the relation between Sarbanes-Oxley Act (SOX) and corporate innovation: firms with a public float under $75 million can delay compliance with Section 404 of the Act. We find a significant decrease in the number of patents and patent citations for firms that are subject to Section 404 compliance relative to firms that are not. This relation is more pronounced when firms are financially constrained and when firms face high litigation risk. Overall, our evidence suggests that SOX imposes real costs to the economy by decreasing corporate innovativeness.
Keywords: Innovation; Patents; SOX; Section 404
JEL Classification: G38; O31
Suggested Citation: Suggested Citation