Lone Candle

“The law imposed a set of strict internal accounting controls and, most famously, imposed criminal penalties on CEOs who knowingly signed off on quarterly earnings reports that were found to be fraudulent in any way.

Just over 23 years later, the law is considered a success. Since its passage, there have basically been no major corporate accounting scandals

…

What they likely never realized is the massive unintended consequences caused by their law, which we are still living with to this day—consequences more severe than if existing laws and self-correcting market forces were used to deal with the deceptive accounting that was occurring.

For starters, SOX is very expensive to comply with, typically costing companies millions of dollars per year, on an ongoing basis, and thousands of man-hours. The increased administrative cost has affected companies’ decisions to go public. Some firms simply do not want the additional regulatory scrutiny that is associated with being public. As a result, fewer companies have gone public over time. In the late 1990s, there were more than 6,500 public companies; today, that number stands at 4,700, depending on the index. There are not even enough public companies to fill the Wilshire 5000 Index, which is a measure of the total market capitalization in the United States. As of 2025, there are now more exchange-traded funds than publicly traded stocks. Having said that, the regulatory burden of SOX is certainly one of many factors that determine whether companies go public. Some don’t want the scrutiny from Wall Street analysts. Some don’t want to be exposed to shareholder lawsuits. Some don’t want to deal with activist investors. But the cost of SOX is the primary factor.”

https://reason.com/2025/10/15/sarbanes-oxley-promised-to-protect-investors-it-ended-up-freezing-them-out/