The effect of the Sarbanes-Oxley act on non-US companies cross-listed in the US

Kate Litvak*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

108 Scopus citations


This paper uses a natural experiment to measure market response to the adoption of the Sarbanes-Oxley Act (``SOX"). Because SOX applies to all US public companies, US-based studies have difficulty separating the effects of contemporaneous events. However, controlled analysis is available: SOX applies to some cross-listed firms (those listed on level 2 or 3), but not to others (listed on level 1 or 4). By comparing reactions of SOX-exposed foreign firms to reactions of otherwise similar SOX-unexposed foreign firms, we can test investor beliefs about the costs and benefits of SOX in a way that is not cleanly available for US-based studies. We find that stock prices of foreign firms subject to SOX declined (increased) significantly, compared to cross-listed firms not subject to SOX and to non-cross-listed firms, during key announcements indicating that SOX would (would not) fully apply to cross-listed issuers. In cross-sectional tests, high-disclosing firms and firms from high-disclosing countries experienced the strongest declines, while faster-growing companies experienced weaker declines. This evidence is consistent with the view that investors expected the Sarbanes-Oxley Act to have a net negative effect on cross-listed foreign companies, with high-disclosing and low-growth companies suffering larger net costs, and faster-growing companies suffering smaller costs, particularly when they are located in poorly governed countries.

Original languageEnglish (US)
Pages (from-to)195-228
Number of pages34
JournalJournal of Corporate Finance
Issue number2-3
StatePublished - Jun 1 2007


  • Corporate governance
  • Cross-listing
  • Event study
  • Sarbanes-Oxley Act
  • Securities regulation

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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