Sarbanes-Oxley revisited.

• Author: Doherty, Brian
• Position: Follow-up - Sarbanes-Oxley Act of 2002

In January 2006, reason interviewed four businesspeople and financial professionals to assess the costs and benefits of the 2002 Sarbanes-Oxley Act-the last big federal response to fears of chaos, greed, and fraud in financial markets. Sarbanes-Oxley was intended, we wrote, to "crack down on accounting irregularities, punish those responsible for hiding them from the public, and curtail potential conflicts of interest in corporations' relationships with their auditors."

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Recent academic studies of Sarbanes-Oxley have deepened our understanding of the law's effects. The corporate law specialist Kate Litvak, writing in the Journal of Corporate Finance, found that foreign companies whose U.S. listings subject them to Sarbanes-Oxley regulations show stock price drops compared to foreign companies that are not subject to the law. Litvak's results indicate that the market thinks Sarbanes-Oxley is more harm than help. In a 2007 survey of professional fraud examiners, three-quarters said institutional fraud was more prevalent than before the law was passed.

The eventual total costs of SarbOx to the U.S. economy are not yet apparent, since the Securities and Exchange Commission (SEC) has continued to exempt nearly 5,000 smaller companies, with market capitalizations of less than $75 million, from SarbOx's orders to audit their financial control systems. That exemption is currently set to end in...