Title

Shareholder Rights And The Market Reaction To Sarbanes-Oxley

Keywords

Corporate governance; Governance index; Sarbanes-Oxley; Wealth effects

Abstract

The Sarbanes-Oxley Act of 2002 (SOX) was aimed at enhancing corporate governance, financial reporting, and audit functions. This study compares the market reaction of firms with weak and strong protection of shareholder rights to the passage of SOX. We find that firms with weak shareholder rights experienced positive abnormal returns when SOX was passed. This is consistent with the market perceiving that such firms would benefit from the governance reforms. In contrast, firms with strong shareholder rights did not experience a significant positive market reaction. We also find a significant increase in risk for firms with weak shareholder rights following the passage of SOX. In addition, we find that strong shareholder rights firms decreased shareholder protection after SOX, while weak shareholder rights firms did not change significantly from their pre-SOX protection levels. We find no evidence of abnormal long-run performance for firms that altered their shareholder protection following SOX. © 2007 Board of Trustees of the University of Illinois.

Publication Date

11-1-2008

Publication Title

Quarterly Review of Economics and Finance

Volume

48

Issue

4

Number of Pages

756-771

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1016/j.qref.2007.01.001

Socpus ID

53549106071 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/53549106071

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