Sunday, December 20, 2009
The Economic Benefits of the Sarbanes-Oxley Act? Evidence from a Natural Experiment, by Jun Qian, Boston College - Finance Department; University of Pennsylvania - Wharton Financial Institutions Center; China Academy of Financial Research (CAFR); Philip E. Strahan, Boston College - Department of Finance; National Bureau of Economic Research (NBER); and Julie Zhu, Boston University, was recently posted on SSRN. Here is the abstract:
Section 404 of the Sarbanes-Oxley Act (SOX) requires firms with a public float over $75 million during 2002-2004 to file management reports beginning in 2004, but firms with a smaller float in each of the three years do not need to comply until the end of 2007. Relative to firms that could delay compliance, mandatory filers cut CEO compensation and financial slack, increase ownership by insiders, raise payouts to shareholders, and slow investment growth. These firms experience no change in borrowing costs but enjoy access to longer-term public debt. In contrast, we find no changes in the terms of bank debt. Unlike most prior studies, our results indicate potential benefits of SOX: reduced agency problems of complying firms and improved access to public debt.