The Sarbanes-Oxley act and corporate investment: A structural assessment |
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Authors: | Qiang Kang Qiao Liu Rong Qi |
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Affiliation: | 1. Finance Department, University of Miami, P.O. Box 248094, Coral Gables, FL 33124-6552, USA;2. School of Economics and Finance, University of Hong Kong, Pokfulam, Hong Kong;3. Peter J. Tobin College of Business, St. John''s University, Jamaica, NY 11439, USA |
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Abstract: | We assess the impact of the Sarbanes-Oxley Act of 2002 on corporate investment in an investment Euler equation framework. We allow a dummy for the passage of the Act to affect the rate at which managers discount future investment payoffs. Using generalized method of moments estimators, we find that the rate U.S. firm managers apply to discount investment projects rises significantly after 2002, while the discount rate for U.K. firms remains unchanged. The effects of the legislation on corporate investment are asymmetric, and are much more significant among relatively small firms. We also find that well-governed firms, firms with a credit rating, and accelerated filers of Section 404 of the Act have become more cautious about investment. |
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Keywords: | Sarbanes-Oxley Act Investment Euler equation Investment-implied discount rate Corporate governance |
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