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The Impact of the Sarbanes-Oxley Act on the Cost of Going Public

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  • Christoph Kaserer

    ()
    (Technical University of Munich)

  • Alfred Mettler

    ()
    (Georgia State University)

  • Stefan Obernberger

    ()
    (University of Mannheim)

Abstract

This paper examines the impact of the Sarbanes-Oxley Act (SOX), a legal framework intended to increase transparency and accountability of listed companies, on the cost of going public in the US. We expect SOX to increase the direct cost of going public, but decrease the underpricing because of reduced asymmetric information. Our main results corroborate these hypotheses. First, we find an increase in the cost of going public of 90 bp of gross proceeds. Second, we record a reduction in underpricing of 6 pp, which is related to a reduced offer price adjustment. This supports our hypothesis that SOX represents a mechanism to reduce asymmetric information.

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Bibliographic Info

Article provided by German Academic Association for Business Research in its journal BuR - Business Research.

Volume (Year): 4 (2011)
Issue (Month): 2 (December)
Pages: 125-147

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Handle: RePEc:vhb:journl:v:4:y:2011:i:2:p:125-147

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Keywords: asymmetric information; auditing and legal fees; bookbuilding; IPO; flotation cost; going public; partial adjustment phenomenon; propensity score matching; selection bias; SOX; underpricing; underwriting fees;

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