The Nonpecuniary Costs of Sarbanes Oxley

Nicholas v. Vakkur, RAND

Abstract

Sarbanes Oxley is widely considered the most comprehensive economic regulation since the New Deal. While research has evaluated its financial costs, relatively little is known about the non-financial impact of the law upon firms. We develop six hypotheses regarding the non-financial impact of Sarbanes Oxley, incorporating learning from a comprehensive literature review across multiple disciplines. To evaluate this theory, an original survey was developed and implemented on a random sample of Fortune 500 firms (n = 206). An ordered probit model was used to quantify the results. While many economists consider business surveys to be at least as important as official statistics, they tend to be characterized by a lack of information content (Oppenlander, 1997). Our methodology is advantageous as the model permits including respondent-specific variables that increase the precision of the estimates and substantially reduce the width of the confidence bounds corresponding to the quantified survey results. The results generally support our theory regarding the non-pecuniary costs of Sarbanes Oxley.