Congress Should Repeal thhe Sarbanes-Oxley Act
What are the most important lessons from the experience under the SOA? First, the costs of implementing Section 404 of the Act have been unusually high, especially for smaller corporations. Second, there are large incentives to avoid being subject to the Act; a significant number of smaller firms have delisted (withdrawn their stock from an exchange), and almost all initial public offerings are now on a European stock exchange rather than on an American exchange. Finally, and most important: the SOA promised “to restore investor confidence” in the financial accounts of corporations listed on the U.S. exchanges, an effect that should have increased the amount that investors would pay for a stock per dollar of reported earnings. In fact, the price-earnings ratio of the S&P 500-stock index has declined continuously beginning with the second quarter of 2002 when Congress drafted and approved this legislation. The Sarbanes-Oxley Act has not restored investor confidence, and this Act should be repealed.