Did the Sarbanes-Oxley Act result in a strategic shift in M&A motives?

Abstract

Purpose The purpose of this paper is to examine whether or not the seminal legislation called the Sarbanes-Oxley Act (SOX) influenced a strategic shift in the merger and acquisition (M&A) market. Design/methodology/approach The sample consists of 4,839 completed deals undertaken by US acquirers from the Securities Data Corporation’s US M&As database from January 1, 1996 to December 31, 2009. The authors used the standard event study methodology for short-term performance analysis and the Berkovitch and Narayanan (1993) method to identify merger motives. Findings By following the same acquirers who participated during both pre- and post-SOX periods, the authors find that these acquirers generate 1-1.5 percent more returns for their stockholders around M&A announcement dates and that the motivation has shifted to value maximization (synergy), a notable strategic shift. Research limitations/implications All acquirers and targets are public. Originality/value This paper adds to SOX-related literature as well as to M&A literature. By analyzing M&A deals, often the largest capital investments for acquirers, this paper shows that, despite criticism of SOX, this legislation fundamentally contributed to a strategic shift in the M&A market.