Sarbanes-oxley: Disciplining Executives or Enriching Attorneys? Evidence from Directors and Officers Liability Insurance
Abstract: Following the Sarbanes-Oxley Act of 2002, businesses struggled to comply with new requirements for auditor independence and financial reporting. While the law was burdensome to firms it was a boon to legal professionals, who were granted a longer statute of limitations for fraud claims and more opportunities to pierce the corporate veil. Using a dataset of closed insurance claims against directors and officers, I document a spike in case settlements following Sarbanes-Oxley. In 2003, the expected value of lawsuits against directors and officers jumped dramatically and a flood of cases followed. Using record of case settlements, I find that many of the post-Sarbanes-Oxley cases were of low quality and the chance of a successful plaintiff settlement rapidly declined from 2005 to the present, but the cost of fighting those lawsuits increased.
