Melinda L. Newman

Risk Shifts Following Sarbanes-Oxley: Influences of Disclosure and Governance

The Sarbanes-Oxley Act of 2002 (SOX) aimed to improve financial reporting by enhancing corporate disclosure and governance. We find statistically significant increases, from before to after the passage of SOX, in total return variance, market risk and idiosyncratic risk. The risk increases are consistent with predictions that the legislation would cause firms to disclose more negative information, resulting in increased investment risk. However, in cross-sectional tests, post-SOX improvements in information certainty, board independence and monitoring are associated with smaller increases or greater decreases in risk. If SOX is responsible for these improvements, its effects are consistent with its purpose.

Exchange rate exposure and valuation effects of cross-border acquisitions

Abstract This study examines the relevance of exchange rate risk in the context of cross-border acquisitions. Using a sample of 156 foreign acquisitions of US firms, we find a reduction in exchange rate exposure following acquisition announcements. We also compare the valuation effects generated by a single-factor market model to those of a two-factor model that controls for the exchange rate effect. Our results show that, on average, abnormal returns generated by the two-factor model are significantly lower than those of the single-factor market model.