American Accounting Association 2006 Midwest Region Meeting March 30 – April 1 Chicago, Illinois

Friday, March 31, 10:20 a.m.-12:00 noon
Concurrent session 2E - Transparency and Analyst Forecasts (Financial Accounting and Reporting)

Title: Sarbanes-Oxley: Unintended Consequences for Small Firms

Allan Graham University of Rhode Island	Bing-Xuan Lin University of Rhode Island
David Michayluk University of Technology	Pamela Stuerke University of Rhode Island

ABSTRACT: The Sarbanes-Oxley Act of 2002 was enacted to improve the quality of the legally required corporate disclosures of publicly-traded companies. Opponents of Sarbanes-Oxley have maintained that the costs of these increased requirements far outweigh the benefits of increased transparency of financial reporting. In this paper we examine companies’ decisions to de-list in response to the costs of implementing Sarbanes-Oxley. In the two periods which precede and follow the Act, we identify press releases from publicly-traded firms that have left either an exchange or an over the counter Bulletin Board (OTCBB) to trade on Pink Sheets. We find that the proportion of firms that voluntarily de-listed in the time period following Sarbanes-Oxley was significantly higher than the proportion that de-listed in the preceding time period. We also find that the de-listing firms were predominantly small firms, suggesting that Sarbanes-Oxley places a disproportionate cost burden on small firms.

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