The Social Construction of Sarbanes-Oxley

Abstract

Since its adoption in 2002, the legitimacy of the Sarbanes-Oxley Act has been heavily contested. This paper first examines criticism of the Act from an economic perspective: how likely is it that investors are well or poorly served? Concluding that there is more ambiguity here than either proponents or critics acknowledge, it then turns to the social construction of Sarbanes-Oxley, i.e., how it is perceived, and why. The debate could be simple politics and rent-seeking, or reflect deeper ideological beliefs about the legitimacy of corporate governance and its regulation. To this end, the paper suggests that the Act may have been partially motivated by a desire to move the proper boundaries between the public and private domains in corporate governance, and may be construed in such a light. It then turns to current issues under Sarbanes-Oxley such as the authority of independent directors and the scope of the Act as applied to smaller companies and foreign issuers and considers how various interest groups and other "interpretive communities" (including employees and the financial media) might negotiate its proper meaning regarding those issues.

Keywords: Sarbanes-Oxley Act, securities regulation, auditing, corporate governance

JEL Classification: K23, K49