Abstract
Prior studies conclude that one of the economic costs of complying with the Sarbanes-Oxley Act (SOX) is lower corporate investment. U.S. firms with a public float above $75 million during 2002-2004 had to comply with Section 404 of SOX, whereas firms with a smaller public float in each of those three years could delay compliance until at least 2007. Using this setting as a natural quasi-experiment to isolate the effects that were uniquely due to Section 404 of SOX, we compare investment activities for the two groups of firms around the $75 million threshold. In contrast to prior studies, we do not find a reduction in investment for firms that had to comply with SOX relative to those that could delay compliance. Our results challenge the conventional wisdom that SOX caused firms to decrease corporate investment.
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