We examine a comprehensive sample of going-dark deregistrations where companies cease SEC reporting, but continue to trade publicly. We document a spike in going dark that is largely attributable to the Sarbanes-Oxley Act. Firms experience large negative abnormal returns when going dark. We find that many firms go dark due to poor future prospects, distress and increased compliance costs after SOX. But we also find evidence suggesting that controlling insiders take their firms dark to protect private control benefits and decrease outside scrutiny, particularly when governance and investor protection are weak. Finally, we show that going dark and going private are distinct economic events.
Bibliographical noteFunding Information:
We thank Ray Ball, Utpal Bhattacharya, Brian Bushee, Jeff Coles, Rachel Hayes, Soeren Hvidkjaer, Andrew Karolyi, Jennifer Koski, D. Scott Lee, Tom Lys, Paul Mahoney, Stephen Nelson, Hal Scott, Doug Skinner, Bill Tyson, Joe Weber, Ingrid Werner, Jerry Zimmerman (editor) and workshop participants at the AFA Meetings, George Mason University, George Washington University, Harvard Law School, the JAE Conference, MIT, Northwestern, NYU Summer Camp, Ohio State University, Rotterdam School of Management, the SEC, University of Chicago, University of Mannheim, University of Minnesota, University of Texas at Austin, University of Virginia, University of Washington, Warwick Business School, the WFA Meetings, the World Bank and Yale University for their helpful comments. Christian Leuz thanks the Wharton School and the GSB for their research support of this project. Alex Triantis thanks the Smith School for research support. We appreciate the research assistance of Asli Egrican, Avery Michaelson, Andy Oh, Jared Spier and Jihae Wee.
- Going private
- Pink Sheets
- Private control benefits
- SEC deregistration