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Long-term valuation impact of Sarbanes-Oxley on U.S. vs. foreign firms

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Long-term valuation impact of Sarbanes-Oxley on U.S. vs. foreign firms

Lin, Hui (2007) Long-term valuation impact of Sarbanes-Oxley on U.S. vs. foreign firms. Masters thesis, Concordia University.

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Abstract

This study investigates the long-term impact of the passage of the Sarbanes-Oxley Act of 2002 (SOX) on firm valuation. We detect a significant positive abnormal stock return during a 42-month period after the passage of the SOX. In particular, we find that small companies and U.S.-traded foreign companies experienced more a favourable post-SOX market reaction than large U.S. companies. Firms that are less compliant with the new legislation experienced higher abnormal returns than firms that are more compliant, which implies that investors anticipate low-compliant companies to have more potential to improve corporate governance and financial disclosure therefore benefit shareholders more from SOX's enactment. Results from our cross-sectional analysis indicate that variations in the observed long-term abnormal returns can be explained by certain firm-specific corporate governance characteristics. We find that the long-term abnormal returns are negatively related to board independence and CEO duality, but are positively correlated with the ownership by insiders and institutional investors. We also find evidence that SOX imposed a significant financial burden that fell disproportionately on small firms. On the whole, our results suggest that although SOX imposes a substantial compliance burden on public companies, it is value-enhancing in the long run.

Divisions:Concordia University > John Molson School of Business
Item Type:Thesis (Masters)
Authors:Lin, Hui
Pagination:vi, 54 leaves ; 29 cm.
Institution:Concordia University
Degree Name:Theses (M. Sc. Admin.)
Program:John Molson School of Business
Date:2007
Thesis Supervisor(s):Switzer, Lorne
ID Code:975763
Deposited By: Concordia University Library
Deposited On:22 Jan 2013 16:14
Last Modified:18 Jan 2018 17:41
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