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E-MailThis post is by Lucian Bebchuk of Harvard Law School.
Yael Hochberg, Paola Sapienza, and Annette Vissing-Jorgensen have a new study, A Lobbying Approach to Evaluating the Sarbanes-Oxley Act of 2002, that pursues a novel and interesting approach to assessing SOX. The Abstract of the paper is as follows:
We evaluate the net benefits of the Sarbanes-Oxley Act (SOX) for shareholders by studying the lobbying behavior of investors and corporate insiders to affect the final implemented rules under the Act. Investors lobbied overwhelmingly in favor of strict implementation of SOX, while corporate insiders and business groups lobbied against strict implementation. We identify the firms most affected by the law as those whose insiders lobbied against strict implementation, and compare their returns to the returns of less affected firms. Cumulative returns during the four and a half months leading up to passage of SOX were approximately 10 percent higher for corporations whose insiders lobbied against one or more of the SOX disclosure-related provisions than for similar non-lobbying firms. Analysis of returns of the post-passage implementation period indicates that investors’ positive expectations with regards to the effects of the law were warranted for the enhanced disclosure provisions of SOX.
The full Article is available for download here.
One Comment
The main product of the SOX is the corporate fraud Task force. Pdt G W Bush did create the corporate fraud task force by executive order number 13271 on July 9, 2002. It is to punish corporate wrong doers and combat corporate fraud. A dream team of fraud trained Federal Prosecutors based in Washington DC, provides direction for investigation and prosecution of all US cases of Securities frauds, accounting fraud, medicare fraud, Medicaid fraud, election fraud, mail fraud, money laundering, tax fraud and other related financial crimes committted by commercial entities, individual, board of directors, executives, professional advisors and other employees. That said, this task force is to
– protect jobs and savings of hard working Americans
– Reward shareholders with deserved, actual and expected ROI
-Preserve and maximize employees, regulators, investors and public’s trust in the market place
-Restore confidence to the US marketplace and enforcement power
-Provide fair, actual and accurate information and data to the investing public and regulators
BUT, I agree to disagree with Bush administration and SOX about the implementation of its corporate sentencing guideline. For instance, if a CEO with troubling corporate leadership and desire to save and create jobs makes a material misstatement that causes a 70 cent for a company’s Billion share float, now he faces 11 years in jail. [By the way, for example, additional earning per share of $.70 for a company with P/E ratio of 20 means an appreciation in share price of $14] Eleven years in jail means he did commit more crime than a human being killer.
For example, a late 30 CEO of ‘Global Change’ called Mr A Gorefence (a college drop-out and son of ex-Mayor and Senator who did take advantage of his political roots and then Federal grant in charter school and global warming to create his 10,000+ employees ‘going concern’ firm)who is pleading guilty to securities fraud will be sentence based on this new SOX sentencing guideline used by the judge to determine sentences for individuals convicted to Federal corporate crimes. Corporate governance regulators and academics can calculate what this young executive’s sentence might be before this judge discretion and possible good behavior. It will equal to 7 for basic offenses levels plus 30 for 100+ Million dollars of loss plus 6 for 250+ injured employees plus 2 for endangerment of one publicly traded company plus 4 for violation of securities law while he was Global Change CEO minus 3 for pleading guilty. This figure results in 46 levels or life sentence in jail instead of 33 levels or 135 months or 11 years minimum in jail with previous guideline. The interpretation of this number is that the new guideline will force this young executive to leave this free World for good in his late 30 when previously he was called to re-enter this free World in his late 40 after paying the former guideline. Understanding this legal change quantitatively will build grounds for reviews by regulators and academic advicors.
Arthur Mboue, ’93 BA eco, 96 MBA, corp fin, ’99 JD, post JD cert candidate