Workshop Series: Gordon Richardson
The costs and benefits of the Sarbanes-Oxley Act of 2002 (SOX) have been oft-debated since the inception of the Act. Much of the extant literature has assessed the costs and benefits of SOX to publicly-traded companies. We focus on the costs of SOX compliance for private firms wanting to exit the private market via either an acquisition by a public firm or an IPO. Consistent with our predictions we establish three principal findings. First, SOX appears to have shifted the incentive for firms to exit the private market via IPO to exit via acquisition by a public acquirer. Second, private target deal multiples are increasing in variables that proxy for a private target's level of pre-acquisition SOX compliance. For our median-sized private target, the estimated dollar value decrease in deal proceeds when one moves from a high level to a low level of pre-acquisition SOX compliance is $1.3 million. Finally, public target deal multiples are not affected by a public target's level of pre-acquisition SOX compliance. These findings suggest that SOX-related costs have both restricted the action space of possible exit strategies for private firms and led to lower deal multiples for those private acquisition targets that are less likely to be SOX compliant prior to acquisition. We believe that the implications from our tests will be relevant to regulators in the U.S. and many countries outside the U.S. that are attempting to improve their country's governance and listing standards and potentially seeking alternatives to SOX-like standards, especially with respect to internal controls. International regulators need to assess the total costs of SOX, including costs imposed on private company shareholders, when contemplating the net benefits of SOX-like regimes.
Education and professional designations
PhD in accounting, Cornell University
MBA, York University CA since 1975, FCA awarded by the Institute of Chartered Accountants of Ontario in 1991
KPMG Professor of Accounting
Joseph L. Rotman School of Management
Honorary Professor, University of Queensland Business School
Dr. Richardson is currently a member of the Academic Advisory Council which meets twice a year at the Canadian Institute of Chartered Accountants (“CICA”) to provide the Accounting Standards Board with academic views on emerging areas of standard setting. He has served in this capacity since 2006. He has enjoyed a long standing and close relationship with the CA profession that is manifested in the many years of service on CA sponsored committees and task forces. He served on the Council of the Institute of Chartered Accountants of Ontario (“ICAO”) from 1997-1999. Each summer, he serves for a week as a seminar leader at the ICAO School of Accountancy in order to stay to accounting and auditing standards.
Dr. Richardson was Editor of Contemporary Accounting Research from 2001-2006, one of the top five academic accounting journals in the world. He enjoys an international reputation as a leading scholar in academic accounting and has been an Honorary Professor of the University of Queensland Business School since 2004. In 2004, he was invited by the Chinese University of Hong Kong to deliver the prestigious Wei Lun Visiting Professor Public lecture. In 2008, he was invited by the Korean Accounting Association to give a public address as part of their Distinguished Professor Seminar Series. In 2007, in recognition of his research achievements, he was awarded the Haim Falk Award for Distinguished Accounting Thought by the Canadian Academic Accounting Association. Dr. Richardson is a capital markets researcher and has over 25 publications in peer reviewed academic journals. In 2006, he published a paper in Contemporary Accounting Research which deals with securitizations. This article has interested members of the legal profession as it was the first academic research article to show that investors are skeptical of off-balance sheet accounting for securitizations due to the existence of moral recourse by the sponsors of such deals. He is now undertaking a follow up study that explores similar issues for subprime securitizations during the financial crisis. He has published several articles related to environmental accounting and he is currently working on a project involving the European carbon emissions cap and trade system. He has also conducted research in the area of the valuation of private companies and the Private Company Discount, the usefulness of internal control disclosures mandated by Sarbanes-Oxley, the impact of Sarbanes-Oxley on the valuation of private companies, and the impact of voluntary disclosures on firm valuation. He specializes in accounting based valuation models and the value relevance for investors of financial statements.