Monday, 19 December 2011

Was the Sarbanes-Oxley Act Good News for Corporate Bondholders?

Published on Accounting Horizons

Authors: Mark L. DeFond, Mingyi Hung, Emre Carr, and Jieying Zhang

We investigate the impact of the Sarbanes-Oxley Act (SOX) on corporate bondholder value by examining the bond market reaction to news events leading up to the passage of SOX.

The net impact of SOX on bondholder value is difficult to predict, and there are many reasons why it may be viewed as either good or bad news. Our primary analysis reveals a significant decline in average bondholder value around these events.

In addition, cross-sectional tests find that the decline is significantly larger among riskier bonds and among bonds held by firms that are expected to experience the greatest changes under SOX. Thus, our findings are consistent with the bond market expecting the exogenously imposed changes under SOX to make bondholders worse off.

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