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This paper uses a natural experiment to measure market response to the adoption of the Sarbanes-Oxley Act (SOX). Because SOX applies to all US public companies, US-based studies have difficulty separating the effects of contemporaneous events. However, controlled analysis is available: SOX applies to some cross-listed firms (those listed on level 2 or 3), but not to others (listed on level 1 or 4). By comparing reactions of SOX-exposed foreign firms to reactions of otherwise similar SOX-unexposed foreign firms, we can test investor beliefs about the costs and benefits of SOX in a way that is not cleanly available for U.S.-based studies. We find that stock prices of foreign firms subject to SOX declined (increased) significantly, compared to cross-listed firms not subject to SOX and to non-cross-listed firms, during key announcements indicating that the Act would (would not) fully apply to cross-listed issuers. In cross-sectional tests, high-disclosing firms and firms from high-disclosing countries experienced the strongest declines, while faster-growing companies experienced weaker declines. This evidence is consistent with the view that investors expected the Sarbanes-Oxley Act to have a net negative effect on cross-listed foreign companies, with high-disclosing companies suffering larger net costs, and faster-growing companies from poorly-governed countries suffering smaller costs.In two related papers, lt;a href=rdquo;http://ssrn.com/abstract=959022rdquo;gt;http://ssrn.com/abstract=959022lt;/agt; and lt;a href=rdquo;http://ssrn.com/abstract=994583rdquo;gt; http://ssrn.com/abstract=994583lt;/agt;, I study changes in cross-listing premia during 2002 (the year when SOX was adopted), and between 2002 and 2005. In both, I find that the premia for level-23 cross-listed companies declined relative to level-14 cross-listed companies and non-cross-listed companies, consistent with this event study.
This article tests whether the Sarbanes-Oxley Act (quot;SOXquot;) affected the premium that investors are willing to pay for shares of foreign companies cross-listed in the United States. I find that from year-end 2001 (pre-SOX) to year-end 2002 (after SOX adoption), the Tobin's q and market/book ratios of foreign companies subject to SOX (cross-listed on levels 2 or 3) declined significantly, relative to Tobin's q and market/book ratios of both (i) matching non-cross-listed foreign companies from the same country, the same industry, and of similar size, and (ii) cross-listed companies from the same country that are not subject to SOX (listed on levels 1 or 4), whose Tobin's q and market/book ratios declined only slightly and increased in some specifications, compared to matching non-cross-listed companies. Thus, the premium associated with trading in the United States was roughly constant, while the premium associated with being subject to U.S. regulation declined. The biggest losers were companies that were more profitable, riskier, and smaller, companies with a higher level of pre-SOX disclosure, and companies from well-governed countries. These results are consistent with the view that investors expected SOX to have greater costs than benefits for cross-listed firms on average, especially for smaller firms and already well-governed firms.In a related paper, Kate Litvak, lt;igt;The Effect of the Sarbanes-Oxley Act on Foreign Companies Cross-Listed in the U.S.lt;/igt;, Journal of Corporate Finance, vol. 13, pp. 195-228 (2007), http://ssrn.com/abstract=876624, I conduct an event study of the reaction of level-23 cross-listed companies, and find that their prices declined during SOX-relevant event periods, relative to level-14 cross-listed companies and non-cross-listed companies.
Using a sample of newly initiated American Depository Receipt (ADR) programs over the period 2000 and 2004, this paper examines the effect of Sarbanes-Oxley Act (SOX) on the cross-listing decision and the value consequences of cross-listing by foreign firms. We find that the passage of SOX did not significantly lower the propensity of foreign firms to cross-list their shares on U.S. financial markets. However, we show that the adoption of SOX: (i) increased (decreased) the likelihood of cross-listing by firms from countries with civil (common) law legal systems; (ii) induced firms from civil (common) law countries to cross-list their shares primarily on the OTC (exchange); and (iii) raised the value of cross-listing on the OTC making its difference from exchange market listing insignificant. Our results suggest that post-SOX, foreign firms from common law countries sought functional convergence through legal bonding by cross-listing on an exchange but were deterred by the mandated corporate restructuring as well as legal and administrative costs associated with SOX compliance and elected to cross-list in alternative global financial market venues instead. For foreign firms from civil law countries for whom functional convergence with U.S. financial markets through reputational bonding was sufficient, the strengthened corporate governance environment from SOX encouraged cross-listing on the OTC.
The Sarbannes-Oxley Act (SOX) is a mandatory requirement for all listed corporations in the US, whether foreign or not. Compliance is not an option. Other countries are developing similar legislation so the books value is international in scope. SOX is a hot topic and the effects are just beginning to be felt world-wide. This new book goes beyond the implementation phase of SOX and looks at the reaction to the Act in terms of costs, benefits and business impacts. This book is for Senior Managers in the Business and Financial/Accounting Communities who want/need to know what the reaction of business and government is to the SOX legislation, what it is costing and how the effects are penetrating through the business environment.Mike Holt presents a comprehensive review of the impact that Sarbanes-Oxley legislation has had on business, the financial community, governments and the public since its inception in 2002. The Sarbanes-Oxley Act has been somewhat successful, but not completely and the cost (well over a trillion dollars) might be considered too high a price to pay for the gains. This book takes a hard look at the costs, benefits and other impacts as well as at what influential and prominent financial, government and business leaders think about it now.* International in scope and content and including interviews with prominent business leaders, CEOs and CFOs of large and small corporations.* Compliance with The Sarbanes-Oxley Act is now mandatory for every listed US corporation and overseas corporations listed on US stock markets.* Covers the reaction of business and government to this legislation, what it is costing and how the effects are penetrating through the business environment.
The Public Co. Accounting Reform and Investor Protection Act, otherwise known as the Sarbanes-Oxley Act, was enacted in July 2002 after a series of high-profile corp. scandals involving Enron and Worldcom. Section 404(a) of the Act requires management to assess and report on the effectiveness of internal control over financial reporting. It also requires that an independent auditor attest to management¿s assessment of the effectiveness of those controls. Efforts to reduce the costs while retaining the effectiveness of compliance resulted in a series of reforms in 2007. This report presents an analysis of data from publicly traded co. collected from a survey of financial exec. of co. with Section 404 experience. Charts. This is a print on demand report.
This thesis examined the impact of the Sarbanes-Oxley Act (SOX) on small-sized publicly traded businesses in America and the communities they operate in. This Act (Sarbanes-Oxley Act) was enacted by the U.S Congress and signed into law by President George W. Bush in 2002. The Act has had very devastating and detrimental impacts on small-sized publicly traded businesses and the communities they operate in; according to opponents of the Act, they pointed out the financial burden that many small-sized publicly traded companies had to face in the process of complying with the Act. For example, they pointed to the enormous cost of purchasing new equipment (i.e., computers) in order to comply with the requirements of the Act. The most devastating and toughest element of the Act, according to the opponents of the Act, was the requirement that publicly traded companies hire outside auditors to audit and attest to the stability and viability of their internal control systems. As a result of the stringent requirements of the Act and the costs that is associated with the requirements, many small-sized publicly traded companies have either closed down or de-listed themselves from the U.S securities markets (U.S stock exchanges).
Many emerging market countries are bank-based economies and are increasingly affected by geopolitical risks, U.S. dollar dynamics, regulations, preferential trade agreements (PTAs), MNCs (that often function like international organizations), social networks, labor dynamics, cross-border spillovers and the inefficient expansion of formal/informal microfinance. Country risks, informal economies (that account for 20-50 percent of the national economy of many emerging market countries), investor protection, enforcement commitment, compliance costs, sustainability (environmental, social, economic and political sustainability), economic growth, political stability, financial stability, geopolitical risk, social networks, household economics, inequality and international trade outcomes can vary dramatically across many DECs and LDECs due to these phenomena. The COVID-19 pandemic has illustrated the many problems inherent in political systems, economic policy and governments’ emergency powers during pandemics/epidemics and economic/financial crisis. This second volume focuses on geopolitical risks that are intertwined with constitutional political economy and labor issues, alongside addressing some of the financial and constitutional crises that occurred in Europe, Asia and the U.S. during 2007-2020. This book provides analysis of complex systems and the preferences and reasoning of state/government and corporate actors in order to develop better artificial intelligence and decision-system models of geopolitical risk, public policy and international capital flows, all of which are increasingly important decision factors for investment managers, boards-of-directors and government officials.
Cross-listed foreign private issuers (FPIs) experience abnormal stock returns of -10%, on average, in both the U.S. and their home markets in response to the passage and implementation of the Sarbanes-Oxley Act (SOX), whereas Pink Sheets traded FPIs that are exempt from SOX compliance are not affected. The abnormal returns are generally more negative for better governed FPIs. Further, many more cross-listed FPIs quot;go darkquot; in the U.S., i.e., voluntarily delist and deregister to avoid SEC reporting obligations, in the post-SOX period relative to the pre-SOX period. The abnormal returns at the delisting and deregistration announcements are negative in the pre-SOX period and positive in the post-SOX period, with the difference being highly significant. Taken together, the results suggest that SOX imposes excessive compliance costs on cross-listed FPIs. These findings are also consistent with the existence of legal bonding benefits and the weakening of these benefits by SOX compliance.
Following the recent financial crisis, regulators have been preoccupied with the concept of systemic risk in financial markets, believing that such risk could cause the markets that they oversee to implode. At the same time, they have demonstrated a certain inability to develop and implement comprehensive policies to address systemic risk. This inability is due not only to the indeterminacy inherent in the term 'systemic risk' but also to existing institutional structures which, because of their existing legal mandates, ultimately make it difficult to monitor and regulate systemic risk across an entire economic system. Bringing together leading figures in the field of financial regulation, this collection of essays explores the related concepts of systemic risk and institutional design of financial markets, responding to a number of questions: In terms of systemic risk, what precisely is the problem and what can be done about it? How should systemic risk be regulated? What should be the role of the central bank, banking authorities, and securities regulators? Should countries implement a macroprudential regulator? If not, how is macroprudential regulation to be addressed within their respective legislative schemes? What policy mechanisms can be employed when developing regulation relating to financial markets? A significant and timely examination of one of the most intractable challenges posed to financial regulation.