Research Attributes R&D Spending Restraint to SOX

June 19, 2007 ( - A study indicates the Sarbanes-Oxley (SOX) corporate reform law has slowed risk-taking, finding many companies seek to conserve cash instead of developing new products or services, according to a University of Pittsburgh researcher.

Reuters reports that the study found U.S. companies significantly cut research and development spending and capital expenditures, while at the same time increasing cash holdings in the period after the 2002 law compared with their United Kingdom counterparts.

The study, which analyzed 4,239 publicly-traded U.S. companies and 989 U.K. companies, revealed the ratio of research and development expenditures to assets significantly declined from the pre-SOX period to the post-SOX period for the U.S. companies, while the ratio increased for the U.K. companies.

In addition, according to the research, the ratio of capital expenditures to assets declined at a significantly faster rate for the U.S. sample than the U.K. sample over the same time period, Reuters said. Meanwhile, the ratio of cash holdings to assets increased sharply for U.S. companies after SOX, while the ratio declined for the U.K. companies.

At a discussion of the study held Monday by the American Enterprise Institute, Charles Calomiris, a business professor at Columbia University, said there could be other explanations for the data, including a trend of increasing risk acceptance and an increasing entrepreneurial spirit in the United Kingdom, according to the news report. However, the panelists said the circumstantial evidence presented in the research made a strong case for causation between SOX and less corporate risk.