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The Sarbanes-Oxley Act, industrial innovation, and real option creation


  • Waters, James


We look at the effect of the US Sarbanes-Oxley (SOX) financial regulation on industrial innovation. Our theoretical framework shows it creating immediate uncertainty about its costs and future resolution of cost and managerial performance uncertainty. Real option value is created for investment delay. We construct a panel of patenting data and fit our model to it. We find a dip in patenting after SOX and subsequent medium term recovery, with larger dips for small, risky, and new companies. In the medium term, these companies continue to have relatively lower patenting. Like SOX, the dynamic behaviour is found only to apply to US companies. Our results have implications for policy and analysis.

Suggested Citation

  • Waters, James, 2013. "The Sarbanes-Oxley Act, industrial innovation, and real option creation," MPRA Paper 49173, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:49173

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    References listed on IDEAS

    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.
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    More about this item


    Innovation; Patents; Sarbanes-Oxley; Regulation; Real options;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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