Tuesday, October 20, 2009

The Sarbanes Oxley Act Caused A Decline In Corporate Cash Flows

We find that average cash flows decline by 1.3 percent of total assets after SOX. These costs are more significant for smaller firms, for more complex firms, and for firms with lower growth opportunities. Annually, these costs range from $6 million for smaller firms to $39 million for larger firms. Further, we document that net SOX-related costs are not limited to one-time expenses associated with internal control design and implementation. In aggregate, for the 1,428 firms in our sample, these costs exceed $19 billion per year or about $75 billion over the four-year post-SOX study period. Profitability is lower for up to four years post-SOX.
"How Costly is the Sarbanes Oxley Act? Evidence on the Effects of the Act on Corporate Profitability" (Free Download) by Anwer S. Ahmed, Texas A&M University - Mays Business School, Mary Lea McAnally, Texas A&M University - Department of Accounting, Stephanie J. Rasmussen, University of Texas at Arlington, Connie D. Weaver, Texas A&M University.

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