The Sarbanes-Oxley Act and corporate acquisitions
Abstract
Purpose
The purpose of this paper is to analyze and compare the performance of corporate acquisitions between the pre- and post-SOX periods, using both short-term and long-term analyses.
Design/methodology/approach
The sample includes 9,463 mergers and tender offers undertaken by publicly traded US firms between 1996 and 2009. The authors used the standard event study methodology for short-term performance analysis; Berkovitch and Narayanan (1993) method to identify merger motives; and standard benchmark adjusted return on assets (sales) (Barber and Lyon, 1996) and buy-and-hold abnormal returns (Mitchell and Stafford, 2000) to analyze long-term performance.
Findings
Compared to the pre-SOX period, US acquirers experience significantly higher announcement returns in the post-SOX period; the results are robust to various controls like bidder, target and deal characteristics, bidder management quality, and product market competition. Similar results (in favor of post-SOX US acquirers) are obtained with long-term post-acquisition operating and stock performance analyses.
Research limitations/implications
This paper only addressed domestic acquisitions.
Originality/value
This paper adds to the growing body of research on the impact of SOX on publicly traded US corporations. By examining corporate acquisitions, an important long-term investment decision for a firm, the paper shows that despite the complex nature of SOX, substantial compliance costs and the unintended negative consequence it engendered, the act had a beneficial impact in an important area of corporate finance.
Keywords
Acknowledgements
The authors thank Sandra Betton, Adolfo DeMotta, Alex Faseruk, Scott Linn, Jeff Pittman, Jay Ritter and Yaxuan Qi, seminar participants at Concordia University, Memorial University of Newfoundland, California State University at San Bernardino, and Telfer School of Management at Ottawa University. Earlier version of this paper has been presented at the Financial Management Association Annual Meetings, India Finance Conference, and the Midwest Finance Association Meeting for their valuable comments on earlier drafts of this paper. Hossain thanks Memorial University for providing financial support through Start-up Grant (No. 209392) and Vice President SSHRC Grant (No. 210910). The authors also thank Habiba Zaman for her excellent research assistance. All remaining errors are the authors own.
Citation
Bhabra, H.S. and Hossain, A.T. (2017), "The Sarbanes-Oxley Act and corporate acquisitions", Managerial Finance, Vol. 43 No. 4, pp. 452-470. https://doi.org/10.1108/MF-10-2016-0291
Publisher
:Emerald Publishing Limited
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