Compliance costs and disclosure requirement mandates: Some evidence

Abstract

This note contributes to the discussion on the compliance costs of disclosure requirements for publicly traded companies. Prior research tends to focus on audit cost increases when disclosure requirements are stricter. We add some evidence from the point of views of shareholders. Particularly, we contrast stock market reaction to the 2002 Sarbanes–Oxley (SOX) Act which significantly enhanced public company disclosure requirements, with the 2012 Jumpstart Our Business Startups (JOBS) Act which alleviated disclosure requirements for small firms. Contrary to popular belief that more disclosure rules impose regulatory burdens on firms and are costly to implement, we find that the stock market reacted positively toward rules that require more disclosure; whereas it reacted negatively toward rules that require less disclosure, even though those disclosure rules were initially designed to reduce the costs of compliance.