THE IMPACT OF SARBANES-OXLEY ON MARKET EFFICIENCY: EVIDENCE FROM MERGERS AND ACQUISITIONS ACTIVITY

Surya Chelikani and Frank D’Souza

The International Journal of Business and Finance Research, 2011, vol. 5, issue 4, 75-88

Abstract: One of the main goals of the Sarbanes Oxley Act of 2002 (SOX) is to ensure a greater flow of timely and accurate accounting information to investors. While there has been a lot of criticism of SOX, mostly with regard to compliance costs, very little light has been shed on the impact of SOX on market efficiency. The type of funding (stock vs. cash) used in mergers has been shown to be highly correlated with the level of firm mispricing. We thus use merger data gathered in the pre and post-SOX years to reveal a significant shift from stock type mergers (popular during periods of high misvaluation) to cash type mergers. We use logistic regression analysis to show that the implementation of SOX, resulted in greater reliability of market information, lower levels of mispricing and hence a more efficient market. In addition, our results also provide evidence that the SOX imposed compliance costs are not as burdensome as critics claim.

Keywords: Sarbanes Oxley; Mergers and Acquisitions; Market Efficiency (search for similar items in EconPapers)
JEL-codes: G34 G38 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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