Did Sarbanes-Oxley Lead to Better Financial Reporting?

A Survey of Recent Research

Dennis Chambers, PhD, and Dana R. Hermanson, PhD, and Jeff L. Payne, PhD, CPA

On July 25, 2002, Congress over whelmingly passed the landmark Sarbanes-Oxley Act of 2002 (SOX) in reaction to a series of financial accounting scandals involving such companies as Enron and WorldCom, as well as to the demise of Arthur Andersen. Since the passage of SOX, there has been a great deal of controversy about the costs and benefits of this dramatic expansion of federal oversight and regulation. One author dubbed SOX “quack corporate governance” and noted that “legislation in the immediate aftermath of a public scandal or crisis is a formula for poor public policymaking” (Roberta Romano, “The Sarbanes-Oxley Act and the Making of Quack Corporate Governance,” Yale Law Journal, vol. 114, pp. 1521–1612, May 2005).