Did the Sarbanes-Oxley Act result in a strategic shift in M&A motives?
Abstract
Purpose
The purpose of this paper is to examine whether or not the seminal legislation called the Sarbanes-Oxley Act (SOX) influenced a strategic shift in the merger and acquisition (M&A) market.
Design/methodology/approach
The sample consists of 4,839 completed deals undertaken by US acquirers from the Securities Data Corporation’s US M&As database from January 1, 1996 to December 31, 2009. The authors used the standard event study methodology for short-term performance analysis and the Berkovitch and Narayanan (1993) method to identify merger motives.
Findings
By following the same acquirers who participated during both pre- and post-SOX periods, the authors find that these acquirers generate 1-1.5 percent more returns for their stockholders around M&A announcement dates and that the motivation has shifted to value maximization (synergy), a notable strategic shift.
Research limitations/implications
All acquirers and targets are public.
Originality/value
This paper adds to SOX-related literature as well as to M&A literature. By analyzing M&A deals, often the largest capital investments for acquirers, this paper shows that, despite criticism of SOX, this legislation fundamentally contributed to a strategic shift in the M&A market.
Keywords
Acknowledgements
The authors thank the editor Don Johnson for his guidance throughout the process and the anonymous referee for his/her excellent comments and suggestions which made this paper stronger. The authors thank seminar participants at Memorial University for helpful suggestions on earlier drafts of this paper. The authors also thank Alex Faseruk and Samir Saadi for their valuable comments on earlier drafts of this manuscript. Hossain thanks Memorial University for their financial support for this project. All remaining errors are the authors’ own.
Citation
Bhabra, H.S. and Hossain, A.T. (2018), "Did the Sarbanes-Oxley Act result in a strategic shift in M&A motives?", Managerial Finance, Vol. 44 No. 2, pp. 142-159. https://doi.org/10.1108/MF-07-2017-0254
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited