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The Unintended Effects of the Sarbanes-Oxley Act


  • Vidhi Chhaochharia
  • Clemens A. Otto
  • Vikrant Vig


The Sarbanes-Oxley Act (SOX) was passed in the wake of several scandals that rocked corporate America in 2001 and 2002. The objective behind SOX was to improve corporate governance by improving accounting disclosures. Compliance with Section 404 is considered by many to be the most costly requirement of SOX and has been argued to be a disproportionate burden for small firms. Consequently, firms with a public float below $75 million were granted several exemptions from compliance. We document an unintended effect of these exemptions: a weakening of corporate governance through a weakening of the market for corporate control.

Suggested Citation

  • Vidhi Chhaochharia & Clemens A. Otto & Vikrant Vig, 2011. "The Unintended Effects of the Sarbanes-Oxley Act," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(1), pages 149-164, March.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201103)167:1_149:tueots_2.0.tx_2-0

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    References listed on IDEAS

    1. Caplin, Andrew & Schotter, Andrew, 2008. "The Foundations of Positive and Normative Economics: A Handbook," OUP Catalogue, Oxford University Press, number 9780195328318, June.
    2. Mark Armstrong & Steffen Huck, 2011. "Behavioral Economics as Applied to Firms: A Primer," Antitrust Chronicle, Competition Policy International, vol. 1.
    3. Steven D. Levitt & John A. List, 2007. "What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 153-174, Spring.
    4. B. Douglas Bernheim & Antonio Rangel, 2007. "Toward Choice-Theoretic Foundations for Behavioral Welfare Economics," American Economic Review, American Economic Association, vol. 97(2), pages 464-470, May.
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    Cited by:

    1. Gregory J. Werden, 2011. "The Sarbanes-Oxley Act and the Market for Corporate Control," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(1), pages 168-171, March.
    2. Christoph Engel & Urs Schweizer, 2011. "Business-to-Consumer Transactions 28th International Seminar on the New Institutional Economics June 09-12, 2010, Budapest," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(1), pages 1-3, March.

    More about this item

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation


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