"Academic" Topic: cost of debt and SOX

[lmatyas]

Hi everybody

i am just wondering if the gains of SOX can be measured somehow in the context of market efficiency. if the company is compliant, its debt should be cheaper to finance due to the improved reliability, transparence, etc..

im just not sure what the best method is to do the comparison, and whether to include the equity part..

it would be interesting to develop some model which is able to evaluate the different regulations in terms of efficiency..or maybe this is a stupid idea?

thank you

[harrywaldron]

Hi and welcome to the forum

I'd suggest a couple of things in analyzing this as a potential theme ... First, search our forums with the keyword of "Benefits" and also this Google search had a few interesting links.

Please paste to browser & add www
google.com/search?&q=SOX+Benefits+of+Compliance

Some ideas as YMMV based on how it's implemented:

1. As a negative, SOX can add significant overhead, if the company has not had good controls in the past, while in already well controlled companies it may "drop in" with just a little extra effort.

2. The compliancy team must get proper training and study extensively on "how to do it right" (both effectively and efficiently).

With that said, I see some benefits in spite of the overhead and extra work:

1. Having improved financial data can help in a companies decision making at the top, as they explore financing options, new business ventures, etc.

2. I believe the financial controls does give the public a little more confidence in companies stated earnings and asset valuations (e.g., as SOX controls hold the CEO/CFO liable if anyone attempts to "cook the books")

3. Maybe borrowing from banks or selling more stock shares to raise from a capital standpoint may also enhanced by SOX controls due to improved public confidence in valuations? I'm thinking "yes" on your original question, and maybe based on your research noted above, this might be proven out.