Emerging Tech

The Economic Benefits of the Sarbanes-Oxley Act?: Evidence From a Natural Experiment

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Executive Summary

Section 404 of the Sarbanes-Oxley Act (SOX) requires firms with a public float over $75 million during 2002-2004 to file management reports beginning in 2004, but firms with a smaller float in each of the three years do not need to comply until the end of 2007. Relative to firms that could delay compliance, mandatory filers cut CEO compensation and financial slack, increase ownership by insiders, raise payouts to shareholders, and slow investment growth. These firms experience no change in borrowing costs but enjoy access to longer-term public debt.

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