The Impact of the Sarbanes-Oxley Act (SOX) on the Cost of Equity Capital of S&P Firms

This study examines the impact of SOX on the cost of equity capital for small and large S&P firms. The provisions of SOX aim to improve internal control systems and reduce information asymmetry by improving corporate governance systems and increasing transparency. Using a fixed-effects regression model, our findings suggest that the cost of equity capital has decreased post-SOX for the overall sample of firms, but more specifically for the small firms, which are usually associated with poor internal control systems and high information asymmetry. Collectively, our results provide evidence that SOX has had a positive impact on firms.