The Sarbanes-Oxley Act and the private company discount: An empirical investigation

Maximizing the Divestment Price of a Privately Held Company

“…They explain their results by proposing that private ownership leads to superior bargaining power, suggesting that the takeovers of privately held targets create superior total value, as acquirer gains do not appear to occur at the expense of private target gains. It needs to be mentioned that their study does not address the possibility that these relatively higher multiples are due to differences in accounting standards applicable to companies not listed on a major stock exchange (DiGabriele, 2007). Similarly, Lys and Yehuda (2011) report that the premium over the standalone value paid for privately held targets is generally higher, but is more than offset by higher synergies.…”

“…The Sarbanes-Oxley Act of 2002 (SOX) was the last significant change to US securities law. Consequently, the due diligence process has become more rigorous and is now being consummated more slowly (DiGabriele, 2007). However, to date, no studies regarding the effect of SOX on value creation and acquisition premiums in takeover transactions in general have been published.…”

“…De Franco, Gavious, Richardson, and Jin (2009) observe a decrease in enterprise value for small and medium enterprises not hiring one of the leading four audit companies (Big4), and conclude that the private enterprise discount can be explained by a lack of information quality facing the buyer rather than an illiquidity discount. Conducting an event study on the private enterprise discount, DiGabriele (2007) reports that, in the United States, the relative private enterprise discounts increased after the Sarbanes-Oxley Act. He comments that unreliable information causes acquirers to bid less for privately held targets.…”

Can the Audit Committee Provide Better Oversight of Listed Companies? – An Efficiency of Cash Holdings Perspective

“…From the economic efficiency perspective, the cost can bring more benefits to larger firms. DiGabriele (2008) finds that since implementation of SOX, nonpublic firms have suffered a significant increase in loss of firm value. Menon and Williams (1994) show that firms with a larger board can benefit more from setting up an audit committee.…”

The Sarbanes‐Oxley Act and Exit Strategies of Private Firms

“…DiGabriele () finds evidence in the post‐SOX era that the private company discount has increased. However, the paper does not explore variation in the level of pre‐acquisition SOX compliance as a predictor of deal proceeds in either the pre‐ or post‐SOX period.…”