Date of Graduation

5-2013

Document Type

Thesis

Degree Name

Bachelor of Science in Business Administration

Degree Level

Undergraduate

Department

Finance

Advisor

Santamaria, Sergio F

Reader

Rennie, Craig G.

Abstract

This paper analyzes the effect of compliance with Section 404 of the Sarbanes-Oxley Act, also referred to as SOX, on small market cap technology firms using a comparable company analysis model. The comparable company analysis model is used to calculate and compare the average intrinsic values of 45 small and 45 large cap technology companies from the periods of January 1, 1999 to January 1, 2001 (Pre SOX era) and January 1, 2007 to January 1, 2009 (Post SOX era). The purpose of looking at large cap technology firms as a benchmark is to compare how different sized firms within the same industry fair after implementation and compliance of SOX. The stated objective of the Sarbanes-Oxley Act was to improve the quality of financial reporting and to ultimately increase investor confidence again due to the major corporate accounting scandals with companies such as Enron, WorldCom, and Tyco International. According the SEC, Section 404 procedures are intended to help companies detect fraudulent reporting early and deter financial fraud, directly improving the reliability of financial statements. The intentions of Sarbanes-Oxley were in favor of improving investor confidence; however, it had an adverse effect on small cap technology firm’s stock prices. This hypothesis is supported and analyzed by the data derived from the comparable company model results.

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