Has Sarbanes-Oxley Reduced IPOs?

The Sarbanes-Oxley Act was enacted in 2002, setting higher standards for all U.S. public company board, management and public accounting firms.  The Act mandated reforms to enhance financial disclosures and corporate responsibility.  Since the enactment of Sarbanes-Oxley, a debate has ensued about whether or not overregulation has deterred foreign companies from listing in the United States.  In response, the SEC reduced regulatory requirements on foreign and public companies, making compliance easier.  Public companies now face lighter regulations as a result of Supreme Court decisions and requirements that have been eliminated through the Dodd-Frank Act.  The Supreme Court made it significantly harder to sue public companies for securities fraud in several cases and the Dodd-Frank Act eliminated the requirement that auditors must certify the validity of company’s internal controls for companies with a market value of less than $75 million.

A study by Berkeley Law Professor Robert Bartlett, however, found that a majority of companies bought by private equity firms still voluntarily complied with the requirements of Sarbanes-Oxley.  Professor Bartlett’s study corrects a significant bias in the hypothesis that the compliance costs associated with Sarbanes-Oxley resulted in an increase of firms going private.  His study provides considerable evidence to show that the wave of going-private was not driven by the compliance costs.