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CEFS Working Paper Series, Center for Entrepreneurial and Financial Studies, Technische Universität München >
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http://hdl.handle.net/10419/48412
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| Title: | | The impact of the Sarbanes-Oxley act on the cost of going public  |
| Authors: | | Kaserer, Christoph Mettler, Alfred Obernberger, Stefan |
| Issue Date: | | 2008 |
| Series/Report no.: | | CEFS working paper series 2008-07 |
| Abstract: | | This paper examines the impact of SOX on the total cost and the component cost of going public. First, we document a statistically significant increase in non-underwriting expenses of 0.8 percentage points after the introduction of SOX, which is mostly due to an increase in accounting and legal fees. Because of the fixed-cost character of this component cost, smaller issues show a much greater percentage increase than larger ones. Second, we demonstrate a highly significant reduction in underpricing in the magnitude of about 4 percentage points. This result is size-independent, and in accordance with the view that SOX reduces adverse selection costs. Third, we find that on average the total flotation costs have decreased between 3 and 3.5 percentage points in the post-SOX period. However, for smaller companies the reduction in underpricing does not compensate anymore for the increase in non-underwriting expenses (i.e., accounting and legal fees). Therefore, the positive impact of SOX on the costs of going public decreases with smaller offering sizes. |
| Subjects: | | Sarbanes-Oxley SOX IPO Going Public Adverse Selection |
| JEL: | | G30 G34 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CEFS Working Paper Series, Center for Entrepreneurial and Financial Studies, Technische Universität München
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