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Cover of: The Unintended Effects of the Sarbanes-Oxley Act
Clemens A. Otto, Vidhi Chhaochharia, Vikrant Vig

The Unintended Effects of the Sarbanes-Oxley Act

Section: Articles
Volume 167 (2011) / Issue 1, pp. 149-164 (16)
Published 09.07.2018
DOI 10.1628/093245611794656435
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  • 10.1628/093245611794656435
Summary
The Sarbanes-Oxley Act (SOX) was passed in the wake of several scandals that rocked corporate America in 2001 and 2002. The objective behind SOX was to improve corporate governance by improving accounting disclosures. Compliance with Section 404 is considered by many to be the most costly requirement of SOX and has been argued to be a disproportionate burden for small firms. Consequently, firms with a public float below $75 million were granted several exemptions from compliance. We document an unintended effect of these exemptions: a weakening of corporate governance through a weakening of the market for corporate control. (JEL: G34, G38)