I am sure many of you have been wondering whether Sarbanes-Oxley has been successful or not. I know that I have been! Unfortunately, it is a very difficult thing to test. While the costs are relatively easy to measure, the benefits are not. Moreover, even like any regulation, the passage is anticipated and thus normal event studies get muddied.
So with that in mind (and a good dictionary in hand) I present to you Larry Ribstein's look at the Sarbanes-Oxley Act after three years.
Ribstein presents a very interesting history (why and how it came about) and summary (what it contains) of SOX. He then reviews the literature on the Act. This literature review can be summarized with the following quote:
"The finance studies on the effect of SOX have been accompanied by data on the costs of SOX that have fueled mounting doubt about the ActÂs cost-effectiveness."Ribstein's conclusion stems from this literature review:
"In general, the costs have been significant and the benefits elusive."Overall the paper makes several good points, and concludes with his recommendations for future legislation, however, I was left wanting more empirical evidence but I guess that will have to wait.
However, it was a good read and the history/summary section would be great for class use!
Ribstein, Larry E., "Sarbanes-Oxley after Three Years" (June 20, 2005). U Illinois Law & Economics Research Paper No. LE05-016. http://ssrn.com/abstract=746884
BTW I am not kidding about needing a good dictionary. ;)