The Sarbanes‐Oxley Act and Exit Strategies of Private Firms

Bova, Francesco; Minutti‐Meza, Miguel; Richardson, Gordon D.; Vyas, Dushyantkumar

doi:10.1111/1911-3846.12049

Cited by 12 publications

(1 citation statement)

References 29 publications

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“…Kamar et al (2009) find that SOX adoption induced small US firms to exit the public market in the following year. Bova et al (2014) analyze the cost of SOX compliance for private firms and find that SOX appears to have shifted their preference to go public.…”

Section: Impact Of Sarbanes Oxley Actmentioning

confidence: 99%

Impact of Sarbanes Oxley Act on initial public offerings: new evidence from reverse leveraged buyouts

Reddy

Paul

2021

JFRA

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Purpose This paper aims to investigate how the passage of the Sarbanes Oxley Act (SOX) impacted the likelihood and timing of the decision of leveraged buyout (LBO) firms to exit via initial public offering (IPO) (reverse-LBO) and the mediating effect of reputed private equity (PE) firms. Design/methodology/approach The sample comprises firms that went private via LBO between 1990 and 2018. The authors use logistic and ordinary least square regression models to compare the effect of SOX on the re-listing decision and the time taken to re-list. Findings LBO firms were less likely to exit via public offering after SOX, and the time from LBO to IPO was significantly longer for exiting firms post-SOX. PE firm reputation partially reversed the reluctance to exit via IPO and shortened the time to exit. Research limitations/implications The primary focus is RLBOs; the authors do not directly examine other methods of LBO exit. The findings have policy implications for unintended impacts of SOX. Despite the benefits of increasing transparency and protecting investors, SOX reduced the likelihood of going public and increased the time to IPO, potentially reducing product market competition. Originality/value RLBOs present a unique experimental setting as the authors can test the impact of SOX on both the likelihood and time to go public, whereas prior literature using first-time IPO samples are able to test only the likelihood. The authors also show that the reputation of the advising PE firm attenuates the reluctance and time taken for RLBOs to re-list. The authors are, thus, able to provide a new perspective on the impact of SOX on the going public decision.

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Section: Impact Of Sarbanes Oxley Actmentioning

confidence: 99%