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Title:The impact of the Sarbanes-Oxley act on the cost of going public PDF Logo
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.
Going Public
Adverse Selection
Document Type:Working Paper
Appears in Collections:CEFS Working Paper Series, Center for Entrepreneurial and Financial Studies, Technische Universität München

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