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The Impact of the Sarbanes–Oxley Act on Shareholders and Managers of Foreign Firms

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  • Jefferson Duarte
  • Katie Kong
  • Stephan Siegel
  • Lance Young

Abstract

Existing evidence suggests that the Sarbanes–Oxley Act (SOX) may be beneficial to US investors, but that foreign firms are perhaps less likely to list in the USA after SOX. This raises the question of whether foreign firms avoid listing in the USA after SOX because the Act imposes unnecessary costs upon firms. The objective of this article is to reconcile the US and international evidence by distinguishing between the effect of SOX on controlling shareholders and managers of foreign firms and the effect on minority investors of these firms. Our results suggest that insiders of foreign firms believe that the regulation makes the extraction of value from minority investors more difficult and costly for them. Outside investors in foreign firms, on the other hand, seem on average to believe that SOX is beneficial to them. The combination of these results reconciles the existing US and international evidence regarding SOX.

Suggested Citation

  • Jefferson Duarte & Katie Kong & Stephan Siegel & Lance Young, 2014. "The Impact of the Sarbanes–Oxley Act on Shareholders and Managers of Foreign Firms," Review of Finance, European Finance Association, vol. 18(1), pages 417-455.
    • Handle: RePEc:oup:revfin:v:18:y:2014:i:1:p:417-455.
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    File URL: http://hdl.handle.net/10.1093/rof/rft008
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    Cited by:

    1. Humphery-Jenner, Mark & Lisic, Ling Lei & Nanda, Vikram & Silveri, Sabatino Dino, 2016. "Executive overconfidence and compensation structure," Journal of Financial Economics, Elsevier, vol. 119(3), pages 533-558.
    2. Gulen, Huseyin & O'Brien, William J., 2017. "Option repricing, corporate governance, and the effect of shareholder empowerment," Journal of Financial Economics, Elsevier, vol. 125(2), pages 389-415.
    3. Filip, Andrei & Huang, Zhongwei & Lui, Daphne, 2020. "Cross-listing and corporate malfeasance: Evidence from P-chip firms," Journal of Corporate Finance, Elsevier, vol. 63(C).
    4. James, Hui Liang & Wang, Hongxia & Xie, Yamin, 2018. "Busy directors and firm performance: Does firm location matter?," The North American Journal of Economics and Finance, Elsevier, vol. 45(C), pages 1-37.

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