The Economic Effects of SOX Section 404 Compliance: A Corporate Insider Perspective

Posted: 21 Jul 2010

See all articles by Cindy R. Alexander

Cindy R. Alexander

Securities and Exchange Commission (SEC)

Scott W. Bauguess

University of Texas at Austin - Department of Finance

Gennaro (帅纳) Bernile

University of Miami - Department of Finance

Yoon-Ho Alex Lee

Northwestern Pritzker School of Law

Jennifer Marietta-Westberg

U.S. Securities and Exchange Commission

Date Written: July 21, 2010

Abstract

Based on survey responses from 3,138 corporate insiders, we analyze the costs and benefits of compliance with Section 404 of the Sarbanes-Oxley Act of 2002. The vast majority of respondents recognize at least some Section 404 compliance benefits, consistent with it being an effective governance mechanism. The evidence, however, suggests that Section 404 implementation is not generally perceived to improve efficiency. Insiders' perception about the net economic effects of Section 404 compliance varies directly with company size and it appears that large, more complex companies may benefit from Section 404 requirements at the expense of smaller ones, consistent with the criticism that a `one-size- ts-all' approach may not be desirable. Notwithstanding, the common view that Section 404 adds layers of financial reporting procedures to no avail seems to be overstated, and the evidence indicates that standardization by regulatory intervention is beneficial, as attested by the decrease in reported costs and concomitant increase in perceived net benefits following the 2007 reforms, regardless of company size.

Suggested Citation

Alexander, Cindy R. and Bauguess, Scott W. and Bernile, Gennaro (帅纳) and Lee, Yoon-Ho Alex and Marietta-Westberg, Jennifer, The Economic Effects of SOX Section 404 Compliance: A Corporate Insider Perspective (July 21, 2010). Available at SSRN: https://ssrn.com/abstract=1646507 or http://dx.doi.org/10.2139/ssrn.1646507

Cindy R. Alexander (Contact Author)

Securities and Exchange Commission (SEC) ( email )

Washington
United States

Scott W. Bauguess

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

Gennaro (帅纳) Bernile

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

Yoon-Ho Alex Lee

Northwestern Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States
(312) 503-2565 (Phone)

Jennifer Marietta-Westberg

U.S. Securities and Exchange Commission ( email )

100 F St NE
Washington, DC 20549
United States

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