Argument 2.2- SOXBy Lindsey Lee Maloy

Introduction SOX was created in order to prevent fraud

scandals from occurring due to large scandals such as Enron, WorldCom, and Tyco.

The act includes regulations for compliance, which create transparency in the processes of firms and their management teams.

All firms in America are impacted by SOX Policy makers are called to action to change or

replace SOX. Thesis- Complying with SOX damages a private

firm’s ability to receive high-yield debt financing; it disrupts the supply chain, and discourages transitions into the public sector.

Line Of Argument 1- High-Yield Debt Financing

High-yield debt financing provides cash flows for private businesses and in order to receive it they must normally comply with SOX.

Complying with SOX is a bad thing because it is too expensive.

The high cost outweighs the benefits of debt financing.

Line Of Argument 2-Supply Chain Disruption

It is not fair that private firms have to comply with SOX if they choose to do business with a public firm.

Paying for SOX can force a firm to go under and not complying can mess up their supply chain and can also lead into failure of the firm.

A “one size fits all” regulation is not sufficient (Frankel 162).

Line Of Argument 3- Movement to Public

Since SOX has been enacted, it is too expensive and difficult to transition from private to public if a firm wanted to trade stocks.

This hurts private firms because they lose opportunity in the competitive market.

The benefits do not outweigh the cost of compliance and paying for labor that is familiar with SOX.

Counterargument It is argued that SOX has been beneficial to

rebuild trust in investors due to transparency and corporate governance.

Internal controls create transparency, but there is not a uniform way to set up controls so fraud can still slip through.

Corporate governance is achieved through liability put forced on management, but fraud can still occur on lower levels.

Overall no proof SOX has benefited the market.

Conclusion Although it can be argued that SOX has

rebuilt trust in investors through transparency and corporate governance, this can not be proven and the cost is just too high to justify firms potentially be protected from fraud.

The costs are too high for private firms to pay if they want to stay in business.

Policy makers need to consider what is best for private firms and change or replace SOX with a better option once one is found.

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