The sarbanes-oxley act of 2002 and market liquidity
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). © 2008, The Eastern Finance Association.
Publication Title
Financial Review
Recommended Citation
Jain, P., Kim, J., & Rezaee, Z. (2008). The sarbanes-oxley act of 2002 and market liquidity. Financial Review, 43 (3), 361-382. https://doi.org/10.1111/j.1540-6288.2008.00198.x
