Economic Consequences of the Sarbanes-Oxley Act of 2002
University of Minnesota - Twin Cities
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.
Number of Pages in PDF File: 61
Keywords: Securities legislation, Sarbanes-Oxley Act, Corporate governance, Internal control, Nonaudit services
JEL Classification: G38, M41
Date posted: February 8, 2007