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The Unintended Consequences of the Sarbanes-Oxley Act on Small Business

In: Public Policy in an Entrepreneurial Economy

Author

Listed:
  • Jiamin Wang

    (The George Mason University)

Abstract

The Sarbanes-Oxley Act, with the purpose of improving corporate disclosure integrity and restoring investor confidence, seems to have generated unintended consequences on small entrepreneurial business. A theoretical analysis of both the benefits and costs of SOX implies that while SOX certainly plays a positive role in reducing the agency problem and information asymmetry for entrepreneurial firms, it has also imposed disproportionately higher direct compliance cost on those firms, and incurred tremendous opportunity costs. This is explored using data on the “going public” tendencies and venture capital patterns of these firms. The author finds that SOX has affected not only the tendency of firms to go private but also observes that these firms are smaller as a result of SOX possibly the result of increased compliance costs. Policy recommendations are made accordingly.

Suggested Citation

  • Jiamin Wang, 2008. "The Unintended Consequences of the Sarbanes-Oxley Act on Small Business," International Studies in Entrepreneurship, in: Zoltan J. Acs & Roger R. Stough (ed.), Public Policy in an Entrepreneurial Economy, chapter 3, pages 67-93, Springer.
    • Handle: RePEc:spr:inschp:978-0-387-72663-2_3
    DOI: 10.1007/978-0-387-72663-2_3
    as

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