An Empirical Investigation Of The Impact Of The Sarbanes-Oxley Act Of 2002 On Agency Costs

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Scott E. Miller


agency costs, Sarbanes-Oxley, corporate governance


Drawing upon the long established stream of agency theory literature, this research investigates the effect the impact of the Sarbanes-Oxley Act of 2002 (SOX) on the moderating effect of corporate governance mechanisms on the agency problem. Significant attention has been given to the costs associated with SOX, yet there is no notable research which examines the benefits derived therefrom. The purpose of this research is to fill the void in the current literature and complement its focus on costs with a serious investigation into whether benefits are being realized from this legislation. Investigating domestic, manufacturing firms listed on the New York Stock Exchange, this research illustrates that SOX caused these governance mechanisms to effectively moderate agency conflict in a post-SOX environment for this sample when they did not do so in a pre-SOX environment. Additionally, it concludes that in a model that includes audit fees, SOX improved the effectiveness of these governance mechanisms in the reduction of agency costs more predominantly with more robust results. Therefore, this research is the first to provide evidence that there are measureable benefits that flow from the passage of SOX.


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