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The Sarbanes‐Oxley Act and Exit Strategies of Private Firms
Author(s) -
Bova Francesco,
MinuttiMeza Miguel,
Richardson Gordon,
Vyas Dushyantkumar
Publication year - 2014
Publication title -
contemporary accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.769
H-Index - 99
eISSN - 1911-3846
pISSN - 0823-9150
DOI - 10.1111/1911-3846.12049
Subject(s) - extant taxon , business , initial public offering , sarbanes–oxley act , proxy (statistics) , principal (computer security) , accounting , finance , private information retrieval , private investment in public equity , private sector , corporate governance , economics , private equity fund , statistics , mathematics , evolutionary biology , machine learning , computer science , biology , economic growth , operating system
The costs and benefits of the Sarbanes‐Oxley Act of 2002 ( SOX ) have been oft‐debated since the inception of the Act. Much of the extant literature has assessed the costs and benefits of SOX to publicly traded companies. We focus on the costs of SOX compliance for private firms wanting to exit the private market via either an acquisition by a public firm or an IPO . Consistent with our predictions we establish two principal findings. First, SOX appears to have shifted the preferences of private firms from going public to exiting the private market via acquisition by a public acquirer. Second, private target deal multiples are increasing in variables that proxy for a private target's level of pre‐acquisition SOX compliance. These findings suggest that SOX ‐related costs have both restricted the action space of possible exit strategies for private firms and led to lower deal multiples for those private acquisition targets that are less likely to be SOX compliant prior to acquisition.