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The unintended effects of the Sarbanes–Oxley Act of 2002

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  • Vakkur, Nicholas V.
  • McAfee, R. Preston
  • Kipperman, Fred

Abstract

The auditing profession came under intense scrutiny following the collapse of Enron and several other leading firms. Legislators responded swiftly with the Sarbanes–Oxley Act of 2002, a stringent rules-based system widely considered the most comprehensive economic regulation since the New Deal. Researchers such as DeFond and Francis (2005) and Baker (2008) suggest the law may produce serious unintended harmful consequences, resulting in a call for further research to evaluate its impact upon firms. This paper contributes to this literature in several ways. First, it conducts a review and analysis of multiple literatures to formulate several exploratory hypotheses. Second, the strength of the conceptual model is evaluated using a random sample survey of Fortune 500 CEOs (n=206). This represents the first scholarly attempt to evaluate managerial perception of this important law, which Buckley and Chapman (1997) suggest may be more relevant that its actual costs. Third, drawing from Carmona and Trombetta (2008), we suggest the law’s overarching reliance upon strict, inflexible rules may have influenced CEO perception of Sarbanes–Oxley. Since this is not a cost/benefit analysis, neither the potential benefits of the law nor its net effects were evaluated.

Suggested Citation

  • Vakkur, Nicholas V. & McAfee, R. Preston & Kipperman, Fred, 2010. "The unintended effects of the Sarbanes–Oxley Act of 2002," Research in Accounting Regulation, Elsevier, vol. 22(1), pages 18-28.
    • Handle: RePEc:eee:reacre:v:22:y:2010:i:1:p:18-28
    DOI: 10.1016/j.racreg.2010.02.001
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    1. Maroun, Warren & van Zijl, Wayne, 2016. "Isomorphism and resistance in implementing IFRS 10 and IFRS 12," The British Accounting Review, Elsevier, vol. 48(2), pages 220-239.
    2. Cianci, Anna M. & Convery, Amanda M. & Evans, Mark E. & Hughen, Linda & Werner, Edward M., 2021. "The impact of costly regulation on R&D investment levels and productivity," Advances in accounting, Elsevier, vol. 53(C).
    3. Maroun, Warren & Solomon, Jill, 2014. "Whistle-blowing by external auditors: Seeking legitimacy for the South African Audit Profession?," Accounting forum, Elsevier, vol. 38(2), pages 109-121.
    4. Franzen, Laurel & Li, Xu & Vargus, Mark E., 2013. "The effect of Sarbanes-Oxley on the timely disclosure of restricted stock trading," Research in Accounting Regulation, Elsevier, vol. 25(1), pages 47-52.
    5. Foltin, Craig, 2017. "The role of federal regulation in state and local governments and the potential impact of new reforms: An assessment of the effectiveness of reporting, disclosure, and funding," Research in Accounting Regulation, Elsevier, vol. 29(1), pages 19-29.
    6. Maroun, Warren & Atkins, Jill, 2014. "Section 45 of the Auditing Profession Act: Blowing the whistle for audit quality?," The British Accounting Review, Elsevier, vol. 46(3), pages 248-263.
    7. van Zijl, Wayne & Maroun, Warren, 2017. "Discipline and punish: Exploring the application of IFRS 10 and IFRS 12," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 44(C), pages 42-58.
    8. Maroun, Warren, 2015. "Reportable irregularities and audit quality: Insights from South Africa," Accounting forum, Elsevier, vol. 39(1), pages 19-33.

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