Working Paper: CEPR ID: DP6201
Authors: Yael Hochberg; Paola Sapienza; Annette Vissing-Jorgensen
Abstract: We evaluate the net benefits of the Sarbanes-Oxley Act (SOX) for shareholders by studying the lobbying behaviour of investors and corporate insiders to affect the final implemented rules under the Act. Investors lobbied overwhelmingly in favour of strict implementation of SOX, while corporate insiders and business groups lobbied against strict implementation. We identify the firms most affected by the law as those whose insiders lobbied against strict implementation, and compare their returns to the returns of less affected firms. Cumulative returns during the four and a half months leading up to passage of SOX were approximately 10 percent higher for corporations whose insiders lobbied against one or more of the SOX disclosure-related provisions than for similar non-lobbying firms. Analysis of returns in the post-passage implementation period indicates that investors? positive expectations with regards to the effects of the law were warranted for the enhanced disclosure provisions of SOX.
Keywords: Corporate Governance; Sarbanes-Oxley Act
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lobbying against SOX provisions (G38) | Returns post-SOX (G38) |
| Enhanced disclosure provisions of SOX (G38) | Stock returns (G12) |
| Lobbying behavior (D72) | Stock returns (G12) |
| Insiders lobbying against SOX (G38) | Cumulative returns (G12) |