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A Lobbying Approach to Evaluating the Sarbanes-Oxley Act of 2002

  • YAEL V. HOCHBERG
  • PAOLA SAPIENZA
  • ANNETTE VISSING-JØRGENSEN

We evaluate the impact of the Sarbanes-Oxley Act (SOX) on shareholders by studying the lobbying behavior of investors and corporate insiders in order to affect the final implemented rules under SOX. Investors lobbied overwhelmingly in favor of strict implementation of SOX, while corporate insiders and business groups lobbied against strict implementation. We identify firms most affected by the law as those whose insiders lobbied against strict implementation. Such firms appear to be characterized by agency problems, rather than motivated by concerns over compliance costs. Cumulative stock returns during the five and a half months leading up to SOX passage were approximately 7% higher for corporations whose insiders lobbied against SOX disclosure-related provisions than for similar non-lobbying firms, consistent with an expectation that SOX would reduce agency problems. Analysis of returns in the post-passage implementation period suggests that investors' positive expectations with regards to the effects of these provisions were warranted. Copyright (c), University of Chicago on behalf of the Institute of Professional Accounting, 2009.

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Article provided by Wiley Blackwell in its journal Journal of Accounting Research.

Volume (Year): 47 (2009)
Issue (Month): 2 (05)
Pages: 519-583

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Handle: RePEc:bla:joares:v:47:y:2009:i:2:p:519-583
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  1. Bloom, Nicholas & Van Reenen, John, 2006. "Measuring and Explaining Management Practices Across Firms and Countries," CEPR Discussion Papers 5581, C.E.P.R. Discussion Papers.
  2. Lucian Bebchuk & Alma Cohen & Allen Ferrell, 2009. "What Matters in Corporate Governance?," Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 783-827, February.
  3. Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2002. "Corporate Governance and Equity Prices," Center for Financial Institutions Working Papers 02-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
  4. Vidhi Chhaochharia & Yaniv Grinstein, 2007. "Corporate Governance and Firm Value: The Impact of the 2002 Governance Rules," Journal of Finance, American Finance Association, vol. 62(4), pages 1789-1825, 08.
  5. Lo, Kin, 2003. "Economic consequences of regulated changes in disclosure: the case of executive compensation," Journal of Accounting and Economics, Elsevier, vol. 35(3), pages 285-314, August.
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