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The Sarbanes-Oxley act and corporate investment: A structural assessment

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  • Kang, Qiang
  • Liu, Qiao
  • Qi, Rong
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Abstract

We assess the impact of the Sarbanes-Oxley Act of 2002 on corporate investment in an investment Euler equation framework. We allow a dummy for the passage of the Act to affect the rate at which managers discount future investment payoffs. Using generalized method of moments estimators, we find that the rate U.S. firm managers apply to discount investment projects rises significantly after 2002, while the discount rate for U.K. firms remains unchanged. The effects of the legislation on corporate investment are asymmetric, and are much more significant among relatively small firms. We also find that well-governed firms, firms with a credit rating, and accelerated filers of Section 404 of the Act have become more cautious about investment.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 96 (2010)
Issue (Month): 2 (May)
Pages: 291-305

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Handle: RePEc:eee:jfinec:v:96:y:2010:i:2:p:291-305

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Web page: http://www.elsevier.com/locate/inca/505576

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Keywords: Sarbanes-Oxley Act Investment Euler equation Investment-implied discount rate Corporate governance;

References

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Citations

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Cited by:
  1. Waters, James, 2011. "The effect of the Sarbanes-Oxley Act on innovation," MPRA Paper 28072, University Library of Munich, Germany.
  2. Nejadmalayeri, Ali & Nishikawa, Takeshi & Rao, Ramesh P., 2013. "Sarbanes-Oxley Act and corporate credit spreads," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2991-3006.
  3. Arena, Matteo P. & Braga-Alves, Marcus V., 2013. "The discretionary effect of CEOs and board chairs on corporate governance structures," Journal of Empirical Finance, Elsevier, vol. 21(C), pages 121-131.
  4. Waters, James, 2013. "The Sarbanes-Oxley Act, industrial innovation, and real option creation," MPRA Paper 49173, University Library of Munich, Germany.
  5. Strebulaev, Ilya A. & Whited, Toni M., 2012. "Dynamic Models and Structural Estimation in Corporate Finance," Foundations and Trends(R) in Finance, now publishers, vol. 6(1–2), pages 1-163, November.
  6. Andrade, Sandro C. & Bernile, Gennaro & Hood, Frederick M., 2014. "SOX, corporate transparency, and the cost of debt," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 145-165.

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