Assessing the Effectiveness of the Sarbanes-Oxley Act (SOX) in Reducing Financial Fraud in Publicly Listed U.S. Companies
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Date
2025
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Saudi Digital Library
Abstract
Abstract
The Sarbanes–Oxley Act (SOX) of 2002 was enacted to regain confidence in U.S. capital markets following major corporate scandals. Although intended to enhance transparency, internal controls, and fraud deterrence, its effectiveness remains questionable.
This dissertation evaluates whether SOX reduced financial fraud in U.S. publicly listed companies, with specific attention to sectoral variation. Reported fraud cases from 1986 to 2019 were collected via the Nexis database using a Boolean search strategy and classified by industry. Descriptive analysis, peak trend comparisons, and statistical tests, including Poisson regression and Fisher’s Exact Test, were applied to evaluate changes before and after SOX.
Findings show a pronounced escalation in reported fraud post-SOX, with significant increases across most sectors. This suggests SOX improved detection but did not deter fraud. Sectoral differences further indicate that a uniform regulatory approach overlooks industry-specific vulnerabilities, as fraud was most prevalent in sectors characterised by greater accounting complexity, while it was lower in strictly monitored sectors.
The research contributes to the literature by moving beyond proxies of manipulation (e.g., accruals, M-scores) to analyse actual reported fraud cases. It explains that SOX’s effectiveness lies in exposure rather than prevention, and that future reforms must account for sectoral contexts. The findings also challenge whether SOX responses are genuine public-interest regulation or a symbolic political reaction to public pressure.
Description
This dissertation, evaluates the effectiveness of the Sarbanes–Oxley Act (SOX) in reducing financial fraud among U.S. publicly listed companies. Using a uniquely constructed dataset of reported fraud cases collected from the Nexis database (1986–2019), the study employs descriptive analysis, peak trend evaluation, Poisson regression, and Fisher’s Exact Tests to compare fraud incidence before and after SOX, with particular focus on sectoral variation.
The findings show that SOX enhanced fraud detection rather than deterrence, with significant increases in reported cases across most sectors and considerable differences driven by accounting complexity, industry characteristics, and regulatory visibility. By analysing actual reported fraud cases rather than relying on proxy-based prediction models, this dissertation contributes new empirical evidence and highlights the need for sector-specific regulatory approaches to strengthen future fraud prevention and detection frameworks.
Keywords
Managerial Manipulation, Corporate Misreporting, Detection vs. Deterrence, Sector-Specific Fraud Dynamics, Accounting Complexity, Regulatory Factors, Governance Regulations, Internal Controls (Section 404), Corporate Governance Mechanisms, Legislative Behaviour Analysis, Public Interest vs. Private Interest Theory, Ideological Regulatory Theory, Regulatory Effectiveness, Fraud Detection Mechanisms, Media-Reported Fraud Cases, Nexis Boolean Search Strategy, Nexis Fraud Dataset, Poisson Regression Analysis, Fisher’s Exact Test, Descriptive Trend Analysis, Fraud Peak Analysis, Statistical Modelling of Fraud Incidence, Sectoral Variation, Industry-Specific Vulnerabilities, Forensic Accounting Measurement, Financial Scandals, Audit Quality, Reporting Quality, Compliance Costs, Detection Bias, Selection Bias in Fraud Measurement, Financial Regulation Theory, Regulatory Capture, Political Economy of Regulation, Capital Market Confidence, U.S. Publicly Listed Companies
Citation
Almaslukhi, N. (2025). Assessing the Effectiveness of the Sarbanes-Oxley Act (SOX) in Reducing Financial Fraud in Publicly Listed U.S. Companies. Master’s dissertation, University of Leeds.