The Impact of the Sarbanes-Oxley Act on Firms Going Private

Abstract

We study the impact of Sarbanes-Oxley Act (SOX) on the characteristics of firms going private based upon a sample of 147 companies during the period of June 13, 2000 to October 3, 2003. We partition the sample into pre-SOX and post-SOX periods, and cluster analysis is employed to identify firms with similar characteristics. One group of firms is identified before the Sarbanes-Oxley Act, while two groups of firms are identified after the Act. Parametric and non-parametric tests confirm a small group of firms going private with characteristics consistent with the contention that Sarbanes-Oxley Act drives these firms private due to heavy monitoring cost.

Keywords: Sarbanes-Oxley Act, going private, cluster analysis

JEL Classification: K22, G24, G38