Empirical Analysis of Firm Attributes before and after the Sarbanes-Oxley Act

Abstract

This paper examines whether voluntary delisting from U. S. exchanges by international firms surged during the five years following the passage of Sarbanes-Oxley ACT of 2002 (SOX). Using 278 international firms, which include 139 delisted international firms from NYSE and NASDAQ and a matched pair of 139 non-delisted international firms, we document that the number of voluntary delisting increased significantly from 12.9% in the pre-SOX period (1997 – 2001) to 87.1% in the post-SOX period (2002 – 2007). This represents an increase of 74.2% in the number of international firms that delisted. In addition, using a predictive model advanced by Piotroski and Srinivasan (2008) and Doidge, Karolyi, and Stulz (2009), we find that yearly profitability ratio is negatively affected by ADR listing status and is the strongest predictor of delisting in the logistical regression model. Furthermore, firm size, corporate governance and leverage ratio are not statistically significant in predicting ADR listing status or associated with SOX legislation. This supports the documented evidence that the SOX legislation did not decrease or negatively affect firm size, corporate governance, or leverage ratio.