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Economic Consequences of the Sarbanes-Oxley Act of 2002

61 Pages Posted: 8 Feb 2007  

Ivy Zhang

University of Minnesota - Twin Cities

Date Written: February 1, 2007


This paper investigates the economic consequences of the Sarbanes-Oxley Act (SOX) by examining market reactions to related legislative events. Using concurrent stock returns of non-U.S.-traded foreign firms to estimate normal U.S. returns, I find that U.S. firms experienced a statistically significant negative cumulative abnormal return around key SOX events. I then examine the cross-sectional variation of U.S. firms' returns around these events. Regression results are consistent with the nonaudit services and governance provisions imposing net costs. Additional tests show that deferring the compliance of Section 404, which mandates an internal control test, resulted in significant cost savings for nonaccelerated filers.

Keywords: Securities legislation, Sarbanes-Oxley Act, Corporate governance, Internal control, Nonaudit services

JEL Classification: G38, M41

Suggested Citation

Zhang, Ivy, Economic Consequences of the Sarbanes-Oxley Act of 2002 (February 1, 2007). Available at SSRN: or

Ivy Zhang (Contact Author)

University of Minnesota - Twin Cities ( email )

19th Avenue South
Minneapolis, MN 55455
United States

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