SOX and The Law of Unintended Consequences

Steve Bainbridge points us to this working paper by William Carney, titled "The Costs of Going Private after Sarbanes-Oxley: The Irony of "Going Private". Here's the abstract:

The Sarbanes-Oxley Act of 2002 added numerous costs to the burden of being a public company. The most onerous of these, requiring inside and outside assessment of internal controls, is only now affecting the costs of remaining a public company. After reviewing the reports of increased compliance costs for larger companies, this paper reports on the increasing numbers of companies choosing to terminate reporting under the securities laws, and focuses on the costs reported for those (generally smaller) companies that disclose their actual compliance costs.

I'm always amazed at how legislators think (or fail to). If you change the costs and benefits of a given course of action (like being a publicly-listed corporation), you'll see changes in the number of people (or corporations) choosing that course of action.

We should have an economics literacy requirement for legislators. Somebody should pass a law!
But then, what would happen?

A Sarbanes Oxley Blog - What Will they Think of Next??

I just came across this blog dedicated to the Sarbanes Oxley bill. It's at www.insidesarbanesoxley.com. Looks like a good resource, and has a pretty good collection of links.

A Review of Sarbanes Oxley

Financeprofessor.com recently highlighted this article in Financial Engineering Today titled "Sox It To Them.

It first lists many of the new requirements under the law, such as increased auditor independence, bans on auditors doing certain types of other work for audit clients, CEO & CFO certification of financial reports, accelerated reporting of insider trades, and so on.

However, the most interesting part of the article is its questioning of the commonly held belief that SOX imposed excessive implementation costs on companies.

There is some evidence that going-private transactions increased in the post-SOX period. For example, see this piece by Engel, Hayes, and Wang, titled"The Sarbanes-Oxley Act and Going Private Transactions."