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- Title
The Sarbanes-Oxley Act of 2002 and Market Liquidity.
- Authors
Jain, Pankaj K.; Jang-Chul Kim; Rezaee, Zabihollah
- Abstract
Investors rely heavily on the trustworthiness and accuracy of corporate information to provide liquidity to the capital markets. We find that the rash of financial scandals caused a severe deterioration in market liquidity in the form of wider spreads, lower depths, and a higher adverse selection component of spreads vis-à-vis their benchmark levels. Regulatory responses including the Sarbanes-Oxley Act of 2002 (SOX) had inconsequential short-term liquidity effects but highly significant and positive long-term liquidity effects. These liquidity improvements are positively associated with the improved quality of financial reports, several firm-specific variables (e.g., size), and market factors (e.g., price, volatility, volume).
- Subjects
UNITED States; LIQUIDITY (Economics); CAPITAL market; SCANDALS; SPREAD (Finance); FINANCIAL statements; UNITED States. Sarbanes-Oxley Act of 2002
- Publication
Financial Review, 2008, Vol 43, Issue 3, p361
- ISSN
0732-8516
- Publication type
Article
- DOI
10.1111/j.1540-6288.2008.00198.x