The Impact of the Sarbanes-Oxley Act of 2002 on the Premia Paid for Target Companies in Mergers and Acquisitions

Abstract

This thesis investigates the impact of the Sarbanes-Oxley Act of 2002 on the premia paid for target companies in mergers and acquisitions. I am analyzing a sample of 104 deals, where both the target and the acquiring company are either U.S. based public companies, or foreign public companies listed on one of the major U.S. exchanges. My study did not allow me to detect any significant difference in merger premia pre- and post- Sarbanes-Oxley. Of all the variables included in my model that are predicted to affect the size of premium paid for a target company, only target’s market-to-book ratio was found to have significant negative effect on the premium, although this effect is not economically significant. I have also found that the target’s ROA has a marginal negative effect on merger premia. Finally, my results show that method of payment plays a role in explaining of the size of a premium, with cash paid acquisitions resulting in a higher premium offered. None of the other variables were found to have a significant effect on the size of the premium offered for a target company.