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The Pricing of IPOs Post-Sarbanes-Oxley

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  • Jarrod Johnston
  • Jeff Madura

Abstract

The Sarbanes-Oxley Act (SOX) imposes new requirements for firms going public. Many provisions of SOX should improve the transparency of U.S. firms going public and therefore reduce the uncertainty surrounding their valuation. We find that initial returns of initial public offerings (IPOs) in the United States have declined since SOX. Furthermore, the aftermarket performance of IPOs since SOX is significantly higher. While the expense of public reporting has increased in the United States because of SOX, the valuations of newly public firms at the time of the IPO are subject to less uncertainty and smaller aftermarket corrections. Copyright (c) 2009, The Eastern Finance Association.

Suggested Citation

  • Jarrod Johnston & Jeff Madura, 2009. "The Pricing of IPOs Post-Sarbanes-Oxley," The Financial Review, Eastern Finance Association, vol. 44(2), pages 291-310, May.
  • Handle: RePEc:bla:finrev:v:44:y:2009:i:2:p:291-310
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    Cited by:

    1. Akyol, Ali C. & Cooper, Tommy & Meoli, Michele & Vismara, Silvio, 2014. "Do regulatory changes affect the underpricing of European IPOs?," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 43-58.
    2. Fu, Xudong & Lian, Qin & Tang, Tian & Wang, Qiming, 2015. "An empirical study of executive option grants around initial public offerings," The Quarterly Review of Economics and Finance, Elsevier, pages 207-221.
    3. Salim Darmadi, 2013. "Underpricing, board structure, and ownership: An empirical examination of Indonesian IPO firms," Managerial Finance, Emerald Group Publishing, vol. 39(2), pages 181-200, January.
    4. Esqueda, Omar A. & Jackson, Dave O., 2015. "Cross-listing performance and insider ownership: The experience of U.S. investors," Journal of Multinational Financial Management, Elsevier, pages 77-94.
    5. Gu, Yuqi & Zhang, Ling, 2017. "The impact of the Sarbanes-Oxley Act on corporate innovation," Journal of Economics and Business, Elsevier, pages 17-30.
    6. Jackson, Gregory, 2010. "Understanding corporate governance in the United States: An historical and theoretical reassessment," Arbeitspapiere 223, Hans-Böckler-Stiftung, Düsseldorf.
    7. Abdioglu, Nida & Bamiatzi, Vassiliki & Cavusgil, S.Tamer & Khurshed, Arif & Stathopoulos, Konstantinos, 2015. "Information asymmetry, disclosure and foreign institutional investment: An empirical investigation of the impact of the Sarbanes-Oxley Act," International Business Review, Elsevier, pages 902-915.

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