Corporate Governance, Sarbanes-Oxley, and Small-Cap Firm Performance

Discussion on article Corporate Governance, Sarbanes-oxley, and small cap firm performance

By Chengjie Diao 3320657

The Sarbanes-Oxley act focuses on the improvement of company internal control through corporate governance and increasing the auditor's role in control system. The Sarbanes-Oxley increased the external member of the board of directors in Canadian company. This increased the independency of board of directors of the Canadian company subject to Sox. External members helped to oversee the management of the company operation and insured the Canadian company to operate for the shareholders sakes. Higher discloser on the financial information such as balance sheet was required for Canadian companies subject to Sox. However, Sox also produced a higher cost for the Canadian companies. According to the author's opinion, the net benefit in the form of increased accountability of managers to act in shareholder's interest outweigh the cost of disclosure and compliance. The market for corporate control also is found to exert a positive influence on firm performance (Switzer, 2007, p 15). I agree the author to some extent, Increase accountability of management and corporate control will overall help the company acts toward shareholder's sake. However, according to the article, independent boards are not more likely to enact performance compensation schemes (Switzer, 2007, p 10). Shareholder equity will typically represent a smaller proportion of bank firm's total assets. For example, represents only 4% of its total assets. (Switzer, 2007, p 8)This means Sox can't always improve the performance of the company by act in shareholder's interest.

References

Lorne N, Switzer (2007) Corporate governance, Sarbanes-Oxley, and small-cap firm performance,1-16