The Sarbanes-Oxley Act and the Financial Crisis

The importance of the Sarbanes-Oxley Act of 2002 is shown by the praise of numerous financial experts, who have all pointed out that the Sarbanes Oxley Act has worked to increase investor confidence along with the amount of information going out to investors about businesses, so that no future scandals will be perpetrated. The Financial Executives International 2007 survey of Sarbanes-Oxley Act compliance supported this praise, with figures regarding investor confidence in financial reports all going up to some degree as the Sarbanes-Oxley Act continued to affect practices.

The Sarbanes-Oxley Act has also even helped to uncover certain instances of fraudulent behavior, such as the recently discovered Value Line scandal, which might not have been discovered at all had it not been for the Sarbanes-Oxley Act. A portfolio manager of the Value Line Fund was asked to put his signature on a Code of Business Ethics, under the provisions of the Sarbanes-Oxley Act. He reported the fraud being perpetrated by the Value Line Fund as a result of having to sign that Code.

Simultaneously, however, the Sarbanes-Oxley Act of 2002 has been met with a fair amount of criticism, casting its importance in an entirely different light. Critics claim that the Act, for all that it may be well-intentioned, has led to a significant disadvantage for U.S. businesses which now have to comply with the Sarbanes-Oxley Act, thereby restricting the practices available to U.S. businesses. This also forces them to pay high costs which further disadvantage them.

These critics also claim that the Sarbanes-Oxley Act has had the important yet damaging effect of leading to fewer and fewer companies registering publicly on the New York Stock Exchange, with many instead choosing to register on a United Kingdom stock exchange. The result is that, in general, the American stock exchanges are not as strong as they might be had the Sarbanes-Oxley Act not provided such stringent requirements with which businesses had to comply.

Furthermore, the recent financial crisis could, in part, be blamed on the effects of the Sarbanes-Oxley Act. Critics blame the scarcity of Initial Public Offerings in stock exchanges across America on the effects of the Sarbanes-Oxley Act. Many, thus, have called for the Act's repeal, seeing it as having failed in its intended purpose and also as having brought on too many negative side effects.

Regardless of whether or not the import of the Sarbanes-Oxley Act of 2002 lies in its positive or negative effects, the fact remains the Act has clearly had an effect upon the nation. Determining exactly what that effect has been will likely take a long time and a great deal of retrospective examination, but understanding the Sarbanes-Oxley Act and its results will lead to further effective legislation down the road.

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