IDEAS home Printed from https://ideas.repec.org/a/eee/jaecon/v49y2010i1-2p53-57.html
   My bibliography  Save this article

The chilling effect of Sarbanes-Oxley: A discussion of Sarbanes-Oxley and corporate risk-taking

Author

Listed:
  • Dey, Aiyesha

Abstract

Bargeron, Lehn, and Zutter [2009. Sarbanes-Oxley and corporate risk-taking. Journal of Accounting and Economics, forthcoming] document that as compared with non-US firms, risk-taking by publicly traded companies in the US declined after the passage of the Sarbanes-Oxley Act in 2002 (SOX). They conclude that this decline is related to board structure, firm size, and research and development expenditures. In my view, Bargeron, Lehn, and Zutter tackle an important question and provide carefully conducted analyses. However, as my discussion highlights, the question is difficult to answer, and as in similar studies on SOX, the evidence needs to be interpreted with caution.

Suggested Citation

  • Dey, Aiyesha, 2010. "The chilling effect of Sarbanes-Oxley: A discussion of Sarbanes-Oxley and corporate risk-taking," Journal of Accounting and Economics, Elsevier, vol. 49(1-2), pages 53-57, February.
    • Handle: RePEc:eee:jaecon:v:49:y:2010:i:1-2:p:53-57
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165-4101(09)00033-0
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Feng Gao & Joanna Shuang Wu & Jerold Zimmerman, 2009. "Unintended Consequences of Granting Small Firms Exemptions from Securities Regulation: Evidence from the Sarbanes‐Oxley Act," Journal of Accounting Research, Wiley Blackwell, vol. 47(2), pages 459-506, May.
    2. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2008. "Trusting the Stock Market," Journal of Finance, American Finance Association, vol. 63(6), pages 2557-2600, December.
    3. Jeremy C. Stein, 1989. "Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(4), pages 655-669.
    4. Linck, James S. & Netter, Jeffry M. & Yang, Tina, 2008. "The determinants of board structure," Journal of Financial Economics, Elsevier, vol. 87(2), pages 308-328, February.
    5. Renée B. Adams & Daniel Ferreira, 2007. "A Theory of Friendly Boards," Journal of Finance, American Finance Association, vol. 62(1), pages 217-250, February.
    6. Hermalin, Benjamin E & Weisbach, Michael S, 1998. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," American Economic Review, American Economic Association, vol. 88(1), pages 96-118, March.
    7. Raheja, Charu G., 2005. "Determinants of Board Size and Composition: A Theory of Corporate Boards," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(2), pages 283-306, June.
    8. Joseph D. Piotroski & Suraj Srinivasan, 2008. "Regulation and Bonding: The Sarbanes‐Oxley Act and the Flow of International Listings," Journal of Accounting Research, Wiley Blackwell, vol. 46(2), pages 383-425, May.
    9. Zhang, Ivy Xiying, 2007. "Economic consequences of the Sarbanes-Oxley Act of 2002," Journal of Accounting and Economics, Elsevier, vol. 44(1-2), pages 74-115, September.
    10. Litvak, Kate, 2007. "The effect of the Sarbanes-Oxley act on non-US companies cross-listed in the US," Journal of Corporate Finance, Elsevier, vol. 13(2-3), pages 195-228, June.
    11. Christian Leuz & Catherine Schrand, 2009. "Disclosure and the Cost of Capital: Evidence from Firms' Responses to the Enron Shock," NBER Working Papers 14897, National Bureau of Economic Research, Inc.
    12. Leuz, Christian, 2007. "Was the Sarbanes-Oxley Act of 2002 really this costly? A discussion of evidence from event returns and going-private decisions," Journal of Accounting and Economics, Elsevier, vol. 44(1-2), pages 146-165, September.
    13. Haidan Li & Morton Pincus & Sonja Olhoft Rego, 2008. "Market Reaction to Events Surrounding the Sarbanes-Oxley Act of 2002 and Earnings Management," Journal of Law and Economics, University of Chicago Press, vol. 51(1), pages 111-134, February.
    14. S. P. Kothari & Susan Shu & Peter D. Wysocki, 2009. "Do Managers Withhold Bad News?," Journal of Accounting Research, Wiley Blackwell, vol. 47(1), pages 241-276, March.
    15. Leuz, Christian & Triantis, Alexander & Yue Wang, Tracy, 2008. "Why do firms go dark? Causes and economic consequences of voluntary SEC deregistrations," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 181-208, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Patrick M. Ryle & Brett L. Bueltel & Mark A. McKnight & Judy K. Beckman, 2022. "Decoding lessons from the Facebook Consent Decree: Does Sarbanes–Oxley foreshadow the future of privacy regulation?," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 19(1), pages 1-10, March.
    2. Ping Wang & Hua Bu & Fengqin Liu, 2022. "Internal Control and Enterprise Green Innovation," Energies, MDPI, vol. 15(6), pages 1-20, March.
    3. Roni Michaely & Amir Rubin & Alexander Vedrashko, 2014. "Corporate Governance and the Timing of Earnings Announcements," Review of Finance, European Finance Association, vol. 18(6), pages 2003-2044.
    4. Balachandran, Balasingham & Faff, Robert, 2015. "Corporate governance, firm value and risk: Past, present, and future," Pacific-Basin Finance Journal, Elsevier, vol. 35(PA), pages 1-12.
    5. Min, Byung-Seong, 2013. "Evaluation of board reforms: An examination of the appointment of outside directors," Journal of the Japanese and International Economies, Elsevier, vol. 29(C), pages 21-43.
    6. Meng, Qingbin & Li, Haitong & Chan, Kam C., 2023. "Fleeing entrepreneurs: Foreign residency right and corporate risk-taking," Research in International Business and Finance, Elsevier, vol. 65(C).
    7. Krapl, Alain & Salyer, Robert, 2017. "The effects of fair value reporting on corporate foreign exchange exposures," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 215-238.
    8. Zhao, Qiuhong & Ziebart, David A., 2015. "SOX and bondholders' reliance on monitors," Research in Accounting Regulation, Elsevier, vol. 27(2), pages 129-137.
    9. Malm, James & Adhikari, Hari P. & Krolikowski, Marcin W. & Sah, Nilesh B., 2021. "The old guard: CEO age and corporate litigation," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    10. Timothy J. Quigley & Adam J. Wowak & Craig Crossland, 2020. "Board Predictive Accuracy in Executive Selection Decisions: How Do Initial Board Perceptions of CEO Quality Correspond with Subsequent CEO Career Performance?," Organization Science, INFORMS, vol. 31(3), pages 720-741, May.
    11. Liu, Wenjun & Lin, Guoyu & He, Qian, 2024. "Enhanced management information disclosure responsibilities and corporate risk-taking: Evidence from the accountability system for errors in China," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 511-531.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ahmed, Anwer S. & McAnally, Mary Lea & Rasmussen, Stephanie & Weaver, Connie D., 2010. "How costly is the Sarbanes Oxley Act? Evidence on the effects of the Act on corporate profitability," Journal of Corporate Finance, Elsevier, vol. 16(3), pages 352-369, June.
    2. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    3. Craig Doidge & G. Andrew Karolyi & René M. Stulz, 2010. "Why Do Foreign Firms Leave U.S. Equity Markets?," Journal of Finance, American Finance Association, vol. 65(4), pages 1507-1553, August.
    4. 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, vol. 24(5), pages 902-915.
    5. Christian Leuz & Peter D. Wysocki, 2016. "The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research," Journal of Accounting Research, Wiley Blackwell, vol. 54(2), pages 525-622, May.
    6. Dhammika Dharmapala, 2016. "Estimating the Compliance Costs of Securities Regulation: A Bunching Analysis of Sarbanes-Oxley Section 404(b)," CESifo Working Paper Series 6180, CESifo.
    7. Ana Albuquerque & Julie Lei Zhu, 2019. "Has Section 404 of the Sarbanes–Oxley Act Discouraged Corporate Investment? New Evidence from a Natural Experiment," Management Science, INFORMS, vol. 65(7), pages 3423-3446, July.
    8. Zhao, Qiuhong & Ziebart, David A., 2015. "SOX and bondholders' reliance on monitors," Research in Accounting Regulation, Elsevier, vol. 27(2), pages 129-137.
    9. Zinat S. Alam & Mark A. Chen & Conrad S. Ciccotello & Harley E. Ryan, 2018. "Board Structure Mandates: Consequences for Director Location and Financial Reporting," Management Science, INFORMS, vol. 64(10), pages 4735-4754, October.
    10. Brandon Gipper & Christian Leuz & Mark Maffett, 2015. "Public Audit Oversight and Reporting Credibility: Evidence from the PCAOB Inspection Regime," NBER Working Papers 21530, National Bureau of Economic Research, Inc.
    11. Bruno Funchal & Daniel Gottlieb, 2011. "Corporate Governance And Credit Access:The Sarbanes-Oxley Act As A Natural Experiment," Anais do XXXVIII Encontro Nacional de Economia [Proceedings of the 38th Brazilian Economics Meeting] 053, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    12. Ferreira, Daniel & Ferreira, Miguel A. & Raposo, Clara C., 2011. "Board structure and price informativeness," Journal of Financial Economics, Elsevier, vol. 99(3), pages 523-545, March.
    13. Doidge, Craig & Karolyi, G. Andrew & Stulz, Rene, 2008. "Why Do Foreign Firms Leave U.S. Equity Markets? An Analysis of Deregistrations under SEC Exchange Act Rule 12h-6," Working Paper Series 2008-14, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    14. Jackson, Gregory, 2010. "Understanding corporate governance in the United States: An historical and theoretical reassessment," Arbeitspapiere 223, Hans-Böckler-Stiftung, Düsseldorf.
    15. Georgieva, Dobrina & Jandik, Tomas, 2012. "Alternative paths of convergence toward U.S. market and legal regulations: Cross-listing vs. merging with U.S. bidders," Journal of Multinational Financial Management, Elsevier, vol. 22(5), pages 230-251.
    16. Kang, Qiang & Liu, Qiao & Qi, Rong, 2010. "The Sarbanes-Oxley act and corporate investment: A structural assessment," Journal of Financial Economics, Elsevier, vol. 96(2), pages 291-305, May.
    17. Stefan Arping & Zacharias Sautner, 2010. "Did the Sarbanes-Oxley Act of 2002 make Firms less Opaque? Evidence from Analyst Earnings Forecasts," Tinbergen Institute Discussion Papers 10-129/2/DSF 5, Tinbergen Institute.
    18. Baldenius, Tim & Melumad, Nahum & Meng, Xiaojing, 2014. "Board composition and CEO power," Journal of Financial Economics, Elsevier, vol. 112(1), pages 53-68.
    19. Li, Xi, 2014. "The Sarbanes–Oxley act and cross-listed foreign private issuers," Journal of Accounting and Economics, Elsevier, vol. 58(1), pages 21-40.
    20. Berger, Allen N. & Kick, Thomas & Schaeck, Klaus, 2014. "Executive board composition and bank risk taking," Journal of Corporate Finance, Elsevier, vol. 28(C), pages 48-65.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jaecon:v:49:y:2010:i:1-2:p:53-57. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jae .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.