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"Sarbanes-Oxley and Corporate Risk-Taking"



A paper by Kenneth Lehn and colleagues of the University of Pittsburgh:

Many policymakers and corporate executives have argued that the Sarbanes-Oxley Act of 2002 (�SOX�) has had a chilling effect on the risktaking behavior of U.S. corporations. This paper empirically examines this proposition. Using a large sample of U.S. and U.K. companies, we find that compared with their U.K. counterparts U.S. firms have significantly reduced their R&D and capital expenditures and significantly increased their cash holdings since SOX. We also find that the equity of U.S. companies has become significantly less risky vis-�-vis U.K. companies since SOX. Finally, using a large sample of U.S. and U.K. initial public offerings (�IPOs�), we find that the likelihood that an IPO was conducted in the U.K. increased significantly after SOX and that this effect was especially high for firms in high R&D industries. Taken together, the results support the view that SOX has had a chilling effect on risk-taking by publicly traded U.S. corporations.

The authors will present their paper at AEI on Monday; Charles W. Calomiris (AEI/Columbia), Allen Ferrell (Harvard Law), and Kate Litvak (Texas Law) will comment.

 

 


Rafael Mangual
Project Manager,
Legal Policy
rmangual@manhattan-institute.org

Katherine Lazarski
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.