Has Section 404 of the Sarbanes-Oxley Act Discouraged Corporate Risk-Taking? New Evidence from a Natural Experiment

Ana M. Albuquerque, Julie Lei Zhu
2013 Social Science Research Network  
Prior studies conclude that one of the unintended consequences of complying with Section 404 of the Sarbanes-Oxley Act (SOX404) is a lower level of corporate risk-taking activities. However, some argue that firms complying with SOX404 benefitted from more reliable financial statements, greater transparency, and lower cost of capital, resulting in more risk-taking investments. We use the discontinuity requirement introduced by SOX404 to construct a natural experiment that isolates its effects.
more » ... find evidence that corporate investment and liquidity increased, while cost of debt decreased, for firms that had to comply with SOX404. JEL Classifications: K0, G2, O5.
doi:10.2139/ssrn.1997228 fatcat:4ic7qplhe5eq3dtcioy7md7c2y