The Private Securities Litigation Reform Act (PSLRA), Sarbanes Oxley & Large Firm Risk

28 Pages Posted: 5 Apr 2012

Date Written: October 17, 2010

Abstract

This study empirically evaluates the impact of the Private Securities Litigation Reform Act of 1995 (PSLRA) and the Sarbanes Oxley Act of 2002 upon the (equity) risk of the largest US firms, the backbone of the US economy. Drawing from the literature, hypotheses are developed and empirically evaluated using an extensive data set: daily return data between 1993 and 2009 from a representative sample of the largest European and US firms. This represents one of the first studies to evaluate the risk implications of the PSLRA, while research on Sarbanes Oxley has produced inconclusive — at times contradictory — findings. Strong evidence is provided that the PSLRA had no significant risk impact, and that Sarbanes Oxley significantly reduced firm risk — measured as mean equity variance. Findings also suggest that Sarbanes Oxley’s risk impairment effect may be enhanced for the largest 2.5% of US firms.

Keywords: Sarbanes Oxley, Accounting, accounting regulation, corporate governance, firm risk, PSLRA, large firms

JEL Classification: C10, C12, C20, C33, C50, D78, D81, G10, G18, G30, G38, K20, K22, I21, l50, l51, M20, M40, N20

Suggested Citation

Vakkur, Nicholas V., The Private Securities Litigation Reform Act (PSLRA), Sarbanes Oxley & Large Firm Risk (October 17, 2010). Available at SSRN: https://ssrn.com/abstract=1693625 or http://dx.doi.org/10.2139/ssrn.1693625

Nicholas V. Vakkur (Contact Author)

Trident University ( email )

5665 Plaza Dr., 3rd Floor
CA, 90630
Cypress, CA 90630
United States

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