Swot - Pepsi and Coca Cola

1142 Words Aug 20th, 2008 5 Pages
Sarbanes Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 is a United States federal law enacted on 30th July 2002, also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called SOX or Sarbox. This law was passed in response to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. These scandals, which cost investors billions of dollars when the share prices of the affected companies collapsed, shook public confidence in the nation 's securities markets. Named after the sponsors Senator Paul Sarbanes of the Democratic party of Maryland and Representative Michael G. Oxley of the Republican party of
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Given that the professional costs and managerial time varies little with company size, small and mid-sized companies must allocate a higher percentage of revenue to SOX compliance (Morgenstern and Nealis, 2004). Many of these firms have considered such measures as reverse stock splits to shrink the company to a size below that required to meet SOX’s strictest requirements, or have considered delisting the company.

According to Wharton School study, most companies de-listed their shares in an attempt to avoid the high costs of complying with the SOX Act, with some smaller companies listing costs of as high as $500,000 to comply. Some companies, however, de-listed to avoid outside monitoring and scrutiny, leading the study’s authors to suspect that firms were not being managed in the most efficient way or that their compensation was excessive. The study found that some of the firms with “higher free cash flow and lower-quality accounting” were more likely to “go dark” – to deregister from the SEC and become private firms (AP, 2004). Independence of board members may also place hardships on smaller companies. Many publicly listed small companies have few board members, and the chief financial officer may act in the capacity of other positions. Smaller firms may not have the resources necessary to recruit qualified individuals to meet independence requirements.

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