The Pricing of IPOs Post‐Sarbanes‐Oxley

Jarrod Johnston · Jeff Madura

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Financial Markets and Investment Strategies Corporate Finance and Governance Auditing, Earnings Management, Governance

Abstract

Abstract The Sarbanes‐Oxley Act (SOX) imposes new requirements for firms going public. Many provisions of SOX should improve the transparency of U.S. firms going public and therefore reduce the uncertainty surrounding their valuation. We find that initial returns of initial public offerings (IPOs) in the United States have declined since SOX. Furthermore, the aftermarket performance of IPOs since SOX is significantly higher. While the expense of public reporting has increased in the United States because of SOX, the valuations of newly public firms at the time of the IPO are subject to less uncertainty and smaller aftermarket corrections.

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References

1991Earnings Management During Import Relief Investigations 1995The New Issues Puzzle 1991The Long‐Run Performance of initial Public Offerings 2008Real and Accrual-Based Earnings Management in the Pre- and Post-Sarbanes-Oxley Periods 1986Why new issues are underpriced 1986Investment banking, reputation, and the underpricing of initial public offerings 1990Initial Public Offerings and Underwriter Reputation 1998Earnings Management and the Long‐Run Market Performance of Initial Public Offerings

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