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Business Research

, Volume 4, Issue 2, pp 125–147 | Cite as

The Impact of the Sarbanes-Oxley Act on the Cost of Going Public

  • Christoph KasererEmail author
  • Alfred Mettler
  • Stefan Obernberger
Open Access
Article

Abstract

This paper examines the impact of the Sarbanes-Oxley Act (SOX), a legal framework intended to increase transparency and accountability of listed companies, on the cost of going public in the US. We expect SOX to increase the direct cost of going public, but decrease the underpricing because of reduced asymmetric information. Our main results corroborate these hypotheses. First, we find an increase in the cost of going public of 90 bp of gross proceeds. Second, we record a reduction in underpricing of 6 pp, which is related to a reduced offer price adjustment. This supports our hypothesis that SOX represents a mechanism to reduce asymmetric information.

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Keywords

asymmetric information auditing and legal fees bookbuilding IPO flotation cost going public partial adjustment phenomenon propensity score matching selection bias SOX underpricing underwriting fees 

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Copyright information

© The Author(s) 2011

Authors and Affiliations

  • Christoph Kaserer
    • 1
    Email author
  • Alfred Mettler
    • 2
  • Stefan Obernberger
    • 3
  1. 1.Department of Financial Management and Capital Markets & CEFSTechnische Universität MünchenGermany
  2. 2.J. Mack Robinson College of BusinessGeorgia State UniversityUSA
  3. 3.Graduate School of Economic and Social SciencesUniversität MannheimGermany

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