Was the Sarbanes-Oxley Act Good News for Corporate Bondholders?

64 Pages Posted: 25 Feb 2007 Last revised: 13 Jul 2008

Mark L. DeFond

University of Southern California - Leventhal School of Accounting

Mingyi Hung

Hong Kong University of Science & Technology (HKUST)

Emre Karaoglu

Columbia University - Columbia Business School

Jieying Zhang

University of Southern California - Leventhal School of Accounting

Date Written: March 20, 2008

Abstract

We find a significant decline in average corporate bondholder value around events leading up to the passage of the Sarbanes-Oxley Act (SOX), but only among bonds issued by firms that are expected to experience relatively large governance changes under SOX. Further, we do not find evidence that the market expects bondholders to benefit from some of the positive consequences potentially associated with SOX, such as improved earnings quality, a reduced probability of intentional misreporting, or reduced earnings volatility. Together, these findings are consistent with the bond market expecting the exogenously-imposed changes under SOX to result in corporate governance structures that make bondholders relatively worse off.

JEL Classification: G38, G12, G32, K22

Suggested Citation

DeFond, Mark L. and Hung, Mingyi and Karaoglu, Emre and Zhang, Jieying, Was the Sarbanes-Oxley Act Good News for Corporate Bondholders? (March 20, 2008). Available at SSRN: https://ssrn.com/abstract=964865 or http://dx.doi.org/10.2139/ssrn.964865

Mark DeFond

University of Southern California - Leventhal School of Accounting ( email )

Accounting Building, Room 206
Los Angeles, CA 90089-0441
United States
213-740-5016 (Phone)
213-747-2815 (Fax)

Mingyi Hung (Contact Author)

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon
Hong Kong

Nuri Karaoglu

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Jieying Zhang

University of Southern California - Leventhal School of Accounting ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States
213-740-8705 (Phone)
213-747-2815 (Fax)

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