SOX and the regulated firm

We investigate the initial and long-term market reactions in three regulated industries to the debate and ultimate passage of Sarbanes–Oxley (SOX) legislation. We argue that market reactions may differ for regulated industries relative to the broad market based on perceived differences in the costs and benefits from the legislation. Our results indicate that the initial reaction to the passage was more positive for regulated firms compared with non-regulated firms. These results are generally consistent with a compliance cost based explanation, although the underlying motivation for the results differs across industries. However, over longer post-SOX holding periods, the regulated samples outperformed the S&P 500 but underperformed their matched samples. Lower longer-term accounting profits in terms of ROA argue against significantly lower compliance costs associated with SOX.