Five years ago today President Bush signed SOX. The journalistic celebration of this event seems to resemble the birthday party of any five year old: he’s a real bundle of trouble, but still growing, and so much fun to have around. More precisely: we’re better off than when SOX was passed; SOX isn’t completely to blame for all the woes that have been laid at its doorstep; companies and regulators are adjusting. See, for example, this view from across the pond, which has the virtue of advertising my t-shirt, this Economist story, which has the virtue of highlighting the scholarly empirical work on SOX, and this story in today’s WSJ.
I’ll have much more to say about all this as I gear up for my debate with Lynn Turner at the AAA meeting next Monday. In the meantime, let me offer a couple of thoughts:
- It would not be at all surprising if SOX has had some benefits. If we lowered the speed limit to 40 mph and put billions into traffic enforcement, lives would surely be saved, and this would be a much more important benefit than avoiding financial harm. The question is whether the cost would be one we’d find worth paying. Cost is similarly the key to the case against SOX.
- My arguments on the costs of SOX are summarized in my book with Butler, The Sarbanes-Oxley Debacle. Ample data, particularly over the last year, supports these arguments, as indicated by papers discussed in my Sarbanes-Oxley archive.
- As for the argument that the costs are declining, they are doing so from a very high level. And we haven’t yet seen the real deluge, which will occur when the first down market (now?) triggers the “litigation time bomb” lurking in SOX.
- More importantly, as Butler and I discuss, there’s a strong argument that markets, given the opportunity, would have produced many, if not all, of the benefits attributed to SOX, but at lower cost.
Finally, much as many would like to repeal SOX, it ain’t going to happen. The question is the lessons for the future. I’ll have more to say about that in later posts and next week.
Update: The costs of SOX are also well covered in Prof B's Complete Guide to Sarbanes-Oxley, with which I spent some of the afternoon. And Clash fans will appreciate the title of Chapter 8.
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