Examining the Legal and Economic Impacts of the Sarbanes-Oxley Act on American Companies

The Sarbanes-Oxley Act (SOX) was enacted in 2002 to enhance corporate governance and restore investor confidence in the aftermath of significant financial scandals. This study examines the legal and economic impacts of SOX on American companies, focusing on its effectiveness in reducing financial crimes and increasing financial transparency. Through a comprehensive review of legal provisions, economic performance data, and case studies, the analysis reveals that while SOX has substantially improved corporate governance and internal controls, it has also imposed significant compliance costs, particularly on smaller firms. The findings suggest that SOX has been effective in decreasing the incidence of financial fraud and enhancing the quality of financial reporting, thereby boosting market confidence. However, the economic burden on companies raises questions about its proportional impact. Despite these challenges, the overall positive effect on market integrity underscores the importance of such regulatory frameworks. This paper concludes with policy recommendations aimed at balancing regulatory benefits with economic sustainability.

Keywords:

Sarbanes-Oxley Act , corporate governance , financial transparency , compliance costs , financial crimes