The Sarbanes-Oxley Act and the Choice of Bond Market by Foreign Firms


  • Yu Gao

    1. The University of Minnesota. I am grateful to members of my dissertation committee: Abbie Smith (chair), Philip Berger, Joseph Piotroski, and Douglas Skinner for valuable guidance and advice. I thank the anonymous referee for insightful suggestions. This paper also benefits from the comments by Ray Ball, Merle Erickson (the editor), Frank Gigler, Tim Gray, Zhaoyang Gu, Christian Leuz, Hongju Liu, K. Ramesh, Pervin Shroff, Suraj Srinivasan, Xue Wang, Ivy Zhang, conference participants at 2008 FARS Midyear Meeting, and seminar participants at Hong Kong Chinese University, Hong Kong University of Science and Technology, New York University, Southern Methodist University, Temple University, University of Illinois at Chicago, University of Minnesota, University of Pittsburgh, and University of Washington in St. Louis. I gratefully acknowledge financial support from the University of Chicago Booth School of Business and the University of Minnesota Carlson School of Management. I am solely responsible for all the errors.
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This paper examines the economic impact of the Sarbanes-Oxley Act (SOX) by studying foreign firms’ choice of whether to issue bonds in the U.S. public bond market or elsewhere before and after the law's enactment in 2002. After controlling for firm characteristics, bond features, home-country attributes, and market conditions, I find that foreign firms rely less on the U.S. public bond market after SOX. Additionally, some determinants of choosing the U.S. public bond market have changed since the passage of SOX: firms listing equities on U.S. stock exchanges, adopting International Financial Reporting Standards (IFRS), and doing large bond issuances are more likely to choose this market in the post-SOX period than in the pre-SOX period. Overall, these results are consistent with a shift in the expected costs and benefits of choosing the U.S. public bond market following SOX. This paper provides the first evidence about how SOX influences debt financing decisions and alters capital flows across international bond markets.