Has Section 404 of the Sarbanes-Oxley Act Discouraged Corporate Risk-Taking? New Evidence from a Natural Experiment

2013 ◽  
Author(s):  
Ana M. Albuquerque ◽  
Julie Lei Zhu
Keyword(s):  
Risk Taking ◽  
Natural Experiment ◽  
Section 404 ◽  
Sarbanes Oxley ◽  
Corporate Risk ◽  
New Evidence

SOX Section 404 and Corporate Innovation

2018 ◽  
Vol 54 (2) ◽  
pp. 759-787 ◽  
Author(s):  
Huasheng Gao ◽  
Jin Zhang
Keyword(s):  
Natural Experiment ◽  
Litigation Risk ◽  
Patent Citations ◽  
Section 404 ◽  
Corporate Innovation ◽  
Sarbanes Oxley ◽  
Real Costs ◽  
Corporate Innovativeness

This paper exploits a quasi-natural experiment to investigate the relation between the Sarbanes–Oxley Act (SOX) of 2002 and corporate innovation: firms with a public float under $75 million can delay compliance with Section 404 of the act. We find a significant decrease in the number of patents and patent citations for firms that are subject to Section 404 compliance relative to firms that are not. This relation is more pronounced when firms are financially constrained and when firms face high litigation risk. Overall, our evidence suggests that SOX imparts real costs to the economy by decreasing corporate innovativeness.

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