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This paper investigates whether the regulatory regime created by the Sarbanes-Oxley Act of 2002 (SOX) has driven firms in general, and small firms in particular, out of the public capital market. Previous attempts to address this question have had difficulty controlling for other factors that could have affected exit decisions around the enactment of SOX. To address this difficulty, the authors examine the post-SOX change in the propensity of public American target firms to be bought by private acquirers rather than public ones with the corresponding change for foreign target firms, which were outside the purview of SOX. Their findings are consistent with the hypothesis that SOX induced small firms to exit the public capital market during the first year of its enactment. Large firms, by contrast, do not appear to have been affected.

The research described in this report was conducted by the Kauffman-RAND Institute for Entrepreneurship Public Policy within the RAND Institute for Civil Justice.

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