An exploratory study of US acquirers’ market performance: pre- versus post-Sarbanes–Oxley act of 2002

Samah El Hajjar, Elie Menassa and Talie Kassamany

Journal of Financial Reporting and Accounting, 2021, vol. 21, issue 2, 268-299

Abstract: Purpose - Motivated by the findings of Bhabra and Hossain (2017) that highlight an improvement in US market performance in the post-Sarbanes–Oxley (SOX) period, this paper aims to investigate how this change varies with the methods of payment used for the deals. Design/methodology/approach - Deductive in nature and using an event study approach, this paper uses a sample of 675 deals between 1999 and 2006 to test three research hypotheses in a pre-post setting. Findings - Results show that at the aggregate level, there is a significant improvement in the market performance of US acquirers around the announcement day in the aftermath of the passage of SOX 2002. Considered separately, both US stock acquirers and cash acquirers did not experience any significant improvement in market performance in the post-Sarbanes–Oxley period. These results are robust to controlling for governance, firm and deal variables, as well as industry and year fixed effects. Research limitations/implications - Exploratory in nature, the results are to be interpreted in light of the sample size and the period under investigation. Practical implications - The results provide evidence for regulators and legislators on the contribution of SOX 2002 to curbing managerial misconduct. Significant improvement in the market performance also signals more confidence in managerial decisions and a reduction in agency problems. The insignificant change in stock acquirers’ market performance can be an indication that policymakers should exert more efforts to improve shareholders' confidence in the quality of disclosure. Originality/value - This investigation provides unique insights on whether SOX has been effective in mitigating mispricing concerns associated with stock-financed acquisitions and whether it was effective in moderating the governance mechanism associated with cash-financed acquisitions.

Keywords: Agency theory; Sarbanes-Oxley act; Market performance; Signaling theory; Mergers & Acquisitions; Cash acquisitions; Stock acquisitions (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrapp:jfra-08-2020-0246

DOI: 10.1108/JFRA-08-2020-0246

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