SOX, corporate transparency, and the cost of debt

Sandro C. Andrade, Gennaro Bernile and Frederick M. Hood

Journal of Banking & Finance, 2014, vol. 38, issue C, 145-165

Abstract: We investigate the impact of the Sarbanes–Oxley (SOX) Act on the cost of debt through its effect on the reliability of financial reporting. Using Credit Default Swap (CDS) spreads and a structural CDS pricing model, we calibrate a firm-level corporate opacity parameter in the pre- and post-SOX periods. Our analysis shows that corporate opacity and the cost of debt decrease significantly after SOX. The median firm in our sample experiences an 18bp reduction on its five-year CDS spread as a result of lower opacity following SOX, amounting to total annual savings of $ 844million for the 252 firms in our sample. Furthermore, the reduction in opacity tends to be larger for firms that in the pre-SOX period have lower accrual quality, less conservative earnings, lower number of independent directors, lower S& P Transparency and Disclosure ratings, and are more likely to benefit from SOX-compliance according to Chhaochharia and Grinstein’s (2007) criteria.

Keywords: Sarbanes–Oxley; Corporate transparency; CDS pricing (search for similar items in EconPapers)
JEL-codes: G12 G33 G38 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426613003919
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:38:y:2014:i:c:p:145-165

DOI: 10.1016/j.jbankfin.2013.10.001

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().