SOX Section 404 and Corporate Innovation

This paper exploits a quasi-natural experiment to investigate the relation between the Sarbanes–Oxley Act (SOX) of 2002 and corporate innovation: firms with a public float under $75 million can delay compliance with Section 404 of the act. We find a significant decrease in the number of patents and...

Full description

Saved in:
Bibliographic Details
Published inJournal of financial and quantitative analysis Vol. 54; no. 2; pp. 759 - 787
Main Authors Gao, Huasheng, Zhang, Jin
Format Journal Article
LanguageEnglish
Published Seattle Cambridge University Press 01.04.2019
Subjects
Annual reports
Citations
Companies
Compliance
Costs
Financial reporting
Innovations
Litigation
Managers
Quantitative analysis
Trends
Online AccessGet full text

Cover

More Information
Summary:This paper exploits a quasi-natural experiment to investigate the relation between the Sarbanes–Oxley Act (SOX) of 2002 and corporate innovation: firms with a public float under $75 million can delay compliance with Section 404 of the act. We find a significant decrease in the number of patents and patent citations for firms that are subject to Section 404 compliance relative to firms that are not. This relation is more pronounced when firms are financially constrained and when firms face high litigation risk. Overall, our evidence suggests that SOX imparts real costs to the economy by decreasing corporate innovativeness.
Bibliography:ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
content type line 14
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109018000844