Working Paper: NBER ID: w12952
Authors: Yael V. Hochberg; Paola Sapienza; Annette Vissing-Jorgensen
Abstract: We evaluate the net benefits of the Sarbanes-Oxley Act (SOX) for shareholders by studying the lobbying behavior of investors and corporate insiders to affect the final implemented rules under the Act. Investors lobbied overwhelmingly in favor 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: Sarbanes-Oxley Act; Lobbying; Shareholder Value
JEL Codes: G3; G34; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lobbying behavior of corporate insiders (G34) | Identifying firms most affected by SOX (G38) |
| Enhanced disclosure provisions of SOX (G38) | Perceived as beneficial by shareholders (G34) |
| Lobbying by investors in favor of strict implementation of SOX (G38) | Higher cumulative returns for firms whose insiders lobbied against SOX provisions (G38) |
| Cumulative returns for corporations whose insiders lobbied against SOX provisions (G38) | Cumulative returns for similar non-lobbying firms (D72) |
| Investors' positive expectations regarding SOX (G38) | Returns for lobbying firms remain similar to non-lobbying firms (L25) |