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Non-pecuniary Costs of Sarbanes Oxley
Sarbanes Oxley is widely considered the most comprehensive business legislation since the New Deal. While research has evaluated its financial costs, relatively little is known about the non-financial impact the law has had upon firms. The authors develop a series of hypotheses regarding the non-pecuniary costs of Sarbanes Oxley, drawing from a comprehensive literature review from multiple disciplines. To evaluate their theory, they developed an original survey and implemented it on a random sample of Fortune 500 firms (n = 206). An ordered probit model was used to quantify the results. While business surveys are considered by many economists to be at least as important as official statistics, they tend to be characterized by a lack of information content. The authors' methodological approach is beneficial since the model permits the inclusion of respondent-specific variables that increase the precision of the estimates and substantially reduce the width of the confidence bounds corresponding to the quantified survey results. They find general support for their theory that as a result of Sarbanes Oxley, firms have incurred specific effects which are perceived to have harmed the firm and/or decreased its value.
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The research in this report was conducted within the RAND Center for Corporate Ethics and Governance, a RAND Institute for Civil Justice center.
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