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THE IMPACT OF THE SARBANES-OXLEY ACT (SOX) ON SMALL-SIZED PUBLICLY

TRADED COMPANIES AND THEIR COMMUNITIES

A thesis presented

by

Abayomi Oluwatosin Alase

to

The School of Education

In partial fulfillment of the requirements for the degree of

Doctor of Education

in the field of

Organizational Leadership Studies

College of Professional Studies

Northeastern University

Boston, Massachusetts

March 2016

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DEDICATION

This thesis is dedicated to all my friends and family who have helped me with the

navigation of this incredible educational journey. More importantly, I would like to dedicate this

thesis to three people who have helped shape my life and supported me through this wonderful

journey. This journey has been the single most rewarding and fulfilling experience of my life.

As a youngster, I found strength and motivation in my late parents, especially my mother. My

mother, an African small market trader with a sixth grade education, believed education to be the

only avenue to succeed in life. My mother instilled in all of her children the value of education;

she would go to any length to make sure she positioned her children to receive the best

opportunity in life. I remember when I was about to start what we used to call secondary school

in Nigeria in the late nineteen seventies, early nineteen eighties, my mother felt that it was

important for me to enroll in a school that is well-known with a national reputation. She worked

selflessly and tirelessly to get me enrolled in the oldest (and first organized school) in Nigeria –

Baptist Academy. For all she did for me, I dedicate this thesis to my late mother (Mrs. Ebuola

Janet Alase), because she is truly the person who laid the foundation for my life/educational

journey.

The second most important person in my life is my Son – Abayomi Oluwatosin Alase Jr.

(AJ). Tosin is my life (he and his mother, my wife, are both my life); looking at my son’s face

energizes and encourages me to keep moving forward. His presence and funny personality keeps

things in perspective for me. I thank God for bestowing him to me and my wife; he is the most

precious gift the Lord has ever blessed me and my wife with – And I thank HIM (The Lord) all

the time for his life.

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Finally, the last person to whom I want to dedicate this thesis to is my lovely wife.

Donya has been there for me since we met at College thirteen years ago. She has supported me

through difficult times; she never waivered in her support for my aspiration to go back to school

and earn my doctoral degree. From the beginning my wife has always been my biggest and

loudest cheerleader as well as my important (smartest) critic. She is my confidant, my wife and

my best friend. Donya is also my only human proof-reader; she has tirelessly read and re-read

every paper I have ever written in this doctoral journey. In all seriousness, even though my

name will appear on the certificate, I know that we both went through this experience together –

I love you, Baby.

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SPECIAL DEDICATION

My special and most important dedication goes to my Lord Jesus Christ for HIS presence

in my life, because without HIM this journey would not have been possible. I know that only by

HIS grace I am able to do all these things. HE guided me through what to say, what to write and

how to write. I have never mixed-words regarding where my thoughts and ideas came from,

because I know from the beginning that it is only by HIS grace and power that I was able to write

all the papers I have written and presented (including this thesis paper). More importantly, I

always felt HIS guidance and blessed hands in my life, my wife’s life, and our son’s life – HE is

always there for us night and day. We thank you, Lord, for your presence, your grace and your

blessings in our lives – Amen.

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ACKNOWLEDGEMENTS

It is a privilege and pleasure to have Dr. Karen Reiss Medwed as my primary advisor. I

am sincerely grateful and thankful for the opportunity to learn from Prof. Medwed, her

insightfulness and valuable feedback have been noting but incredible for my thesis. Secondly, I

would like to thank my second reader Dr. Jane LohMann for all of her feedback and supports; I

am extremely grateful to her for her advice and kindness. Thirdly, I will also like to thank my

third (external) reader, Dr. Marion Mutabazi Mugisha; Dr. Mugisha is a friend who has been

very helpful with advice on how to fine tune my thesis paper; I truly appreciate his thoughtful

advice and encouragement. Last, but not the least, I truly cannot miss this opportunity to thank

Dr. Carol Young; Dr. Young was my research class (Fundamentals of Research) instructor and

was very instrumental in helping me to navigate through all the nuances involved in selecting a

thesis research project. I am very thankful for her help and patience throughout the process.

Finally, I want to thank my family, friends, colleagues, professors and participants for their

wonderful patience, guidance, and feedback throughout this incredible educational journey. It

has truly been a great experience for the opportunity to attend the Northeastern University

Doctor of Education program.

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ABSTRACT

This thesis examined the impact of the Sarbanes-Oxley Act (SOX) on small-sized

publicly traded businesses in America and the communities they operate in. This Act (Sarbanes-

Oxley Act) was enacted by the U.S Congress and signed into law by President George W. Bush

in 2002. The Act has had very devastating and detrimental impacts on small-sized publicly

traded businesses and the communities they operate in; according to opponents of the Act, they

pointed out the financial burden that many small-sized publicly traded companies had to face in

the process of complying with the Act. For example, they pointed to the enormous cost of

purchasing new equipment (i.e., computers) in order to comply with the requirements of the Act.

The most devastating and toughest element of the Act, according to the opponents of the Act,

was the requirement that publicly traded companies hire outside auditors to audit and attest to the

stability and viability of their internal control systems. As a result of the stringent requirements

of the Act and the costs that is associated with the requirements, many small-sized publicly

traded companies have either closed down or de-listed themselves from the U.S securities

markets (U.S stock exchanges).

Keywords: Sarbanes-Oxley Act, SOX, Enron Corp., WorldCom Corp., Tyco International

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TABLE OF CONTENTS

Dedication…………………….……………………………………………………………….ii

Special Dedication……………...……………………………………………………………..iv

Acknowledgement…………………………………………………………………………….v

Abstract………………………………………………………………………………………..vi

Chapter 1: Introduction

Statement of the Problem……………………………………………………….….….14

Historical background on the Sarbanes-Oxley Act of 2002………...…….……....14

The Research Problem………………………………………………….….….......15

Evidence Justifying the Research Problem………………………….…….……....15

Deficiencies in Evidence…………………………………………….……….…...16

Audience…………………………………………………………………..……....17

Significance Statement………………………………………………………….….......17

Positionality Statement…………………………………………………….……..……18

Author’s Background……………………………………………………………...18

Positionality Statement – Summation……………………………….….……...…..19

Purpose Statement and Research Questions………………………………….….......20

Research primary questions…………...……………………………………...........20

Theoretical Framework………………………………………………………...….…..20

Historical background on the theoretical framework – Liminality……………..….21

Alignment of qualitative approach & the construct of theoretical framework…….26

Liminal timeline for the implementation of the Sarbanes-Oxley Act………...…...27

Alignment of the theoretical framework & the research problem of practice..........28

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Alignment of the theoretical framework and the research questions………....….….29

Conclusion……………………………………………………………………….…….…30

Chapter 2: Literature Review

Introduction……………………………………………………………..……….…….…31

Literature Review on the Sarbanes-Oxley Act (Also known as SOX)……….…….....32

Implication of the Sarbanes-Oxley Act on American Businesses………..….……....32

Impact of Sarbanes-Oxley Act on Small-Sized Businesses in America…….…...….36

Critical Shifting Views on the Question of Implementation Cost of SOX….….…...41

New Internal Control Requirement of the Sarbanes-Oxley Act………….................43

Impact of SOX on IT Infrastructure in the Publicly Traded Companies……………46

Impact of Sarbanes-Oxley Act on the Accounting Profession…………....................48

Impact of Congressional and implementation processes on the SOX Act…….…….50

Observation of the SOX Act on the Business Communities in America……………51

Summation………………………………………………………………………………..54

Conclusion………………………………………………………………………..……….55

Literature Review on two additional federal regulatory Acts……………….………..57

Literature Review on the Dodd-Frank Act………………………………...………...57

Literature Review on the Affordable Care Act………………………….…………...67

Chapter 3: Methodology

Methodology………………………………………………………………….………..…79

Research primary questions.………......……………………………….…………....80

Research Tradition/Design………………………………….……………………..…….80

Participants………………………………………………………………….………...….81

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Recruitment and access......................................................................................................83

Data collection………………………………………………………….………………....84

Data Storage and Management……………………………………….………………....85

Data Analysis……………………………………………………………………………..86

Data coding process…………………………………………………………..……..87

Credibility Apparatus of the research study……………………………………..…….89

Trustworthiness……………………………………………………….…………..…89

Member Checking………………………………………………………………..….90

Triangulation……………………………………………………………………..….90

Auditing………………………………………………...………………………..….92

Protection of human subjects…………………………………………………………....92

Chapter 4: Report of Research Findings

Overview…………………………………………………………….………….................96

Participants’ credibility and authentication…….………………………………............98

Introduction to Participant#1: Ms. Pat.………………...................................................99

Emergent Theme A: No impact on the local communities & the businesses...........102

Emergent Theme B: Penalties for rules violators.....................................................105

Emergent Theme C: Financial and investor advisory...............................................107

Emergent Theme D: Extra burden on small-sized businesses …….........................109

Emergent Theme E: Technology allows for open (information) communication....112

Introduction to Participant# 2: Ms. Holly ...…………..................................................114

Emergent Theme A: Initial limited interpretation of SOX & the internal controls...117

Emergent Theme B: Cost and financial impact of SOX on small businesses…...…121

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Emergent Theme C: Mountain of paper work...........................................................123

Emergent Theme D: Companies and their local communities …………..……..... ..126

Conclusion…………………...……..................................................................................128

Chapter 5: Discussion of Research Findings

Introduction……………………. .....................................................................................132

The financial impact on the small-sized publicly traded companies.........................134

The impact on the relationship between companies and their local communities.....135

The importance of the internal control management …………………....................137

The emergence of technology as the new method of communicating information...138

Study Implications ...........................................................................................................140

The direct and/or indirect impact of the SOX Act on the local communities…….…140

The perceived impact of SOX on employment opportunities………………………141

Technological devices as operational tools for publicly traded companies………....141

Study Limitations .............................................................................................................143

Study Recommendations………………………………………………………………..145

Study Reflection……...……...…….………………………………………...…………..146

Post Script Reflection…………………………………………………………………...148

The twists and turns of this thesis (brief narrative of the researcher’s journey)…....148

Conclusion ........................................................................................................................152

Does the author convey an understanding of the philosophical tenets of

phenomenology?........................................................................................................153

Does the author have a clear “phenomenon” to study that is articulated in a concise

way?...........................................................................................................................154

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Does the author use procedures of data analysis in phenomenology, such as the

procedures recommended by Moustakas (1994) or van Manen (1990)?...................154

Does the author convey the overall essence of the experience of the participants?

Does this essence include a description of the experience and the context in which it

occurred?....................................................................................................................155

Is the author reflective throughout the study?............................................................156

References …………………………………………………………………………….………..158

Appendices……………………………………………………………………………………..167

Notification of IRB Action ........................................................................................168

Appendix A: General Invitation Letter…………………………………………........169

Appendix B: Personalized Letter of Invitation .......................................................... 170

Appendix C: Unsigned Consent Document ……………...……….…………........... 171

Appendix D: The Semi-Structured Interview Protocol.............................................. 173

Student Semi-Structured Interview Protocol …………………………….….173

Appendix E: NIH Human Subject Training Certificate…………………….….…….176

Terms and Definitions………………………………………...…………...…………177

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LIST OF TABLES

Table# 1: Years of corporate experience for each participant………………………………99

Table# 2: Educational background for each participant…………………………………….99

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LIST OF FIGURES

Figure# 1: Presents the timeline for the implementation of the SOX Act….……………...27

Figure# 2: Presents some of the critical construct of this thesis document…………..……79

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Chapter 1: Introduction

Statement of the Problem

Historically, American small (and medium) sized businesses have been the main source

of economic growth through their investment in hiring American workers (National Economic

Council, 2011). This historical position goes back decades, if not centuries, and it is an authentic

American way of creating wealth and prosperity for her citizens. More importantly, small-sized

businesses are not just the economic engine of this nation, but they are also the economic engine

for the local communities where they operate.

However, since the enactment of the Sarbanes-Oxley Act in 2002, this law has impacted

the very companies and people that the law was supposed to protect from the unscrupulous acts

of the criminal-minded executive officers of publicly traded companies. The impact of this Act

has devastated not just the financial viabilities of the small-sized publicly traded companies, but

also the innocent families and communities that depend on the economic vitality that these small-

sized publicly traded companies provide. Consequently, the protective Act (The Sarbanes-Oxley

Act) that was supposed to help shield the innocents from the hands of the criminal-minded

executives has now become a detriment to the same vulnerable and innocent citizens and small-

sized publicly traded entities.

Historical background on the Sarbanes-Oxley Act of 2002

In 2002, after the corporate collapse of Enron, WorldCom, and Tyco International, the

United States Congress enacted a bill that made it a punishable offense under the federal criminal

system for any executive officers (CEOs and/or CFOs) of publicly traded companies who

attested to an inaccurate account reports to the Securities and Exchange Commission (SEC)

(Bergen, 2005; Edison, 2006; Shakespeare, 2008). The Act was officially known as the “Public

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Company Accounting Reform and Investor Protection Act” (Senate) and as “Corporate and

Auditing Accountability and Responsibility Act” (House of Representative). However, it is

generally known and called the “Sarbanes–Oxley Act” (SOX); named after the two lawmakers

who wrote the bill - Senator Paul Sarbanes of Maryland and Congressman Michael Oxley of

Ohio.

The Research Problem

Since 2002 when the Act was enacted, the impact of the law on small-sized publicly

traded companies and their local communities has been calamitous. In many instances, countless

small-sized companies that couldn’t financially comply with the law have delisted themselves

from the marketplaces (stock exchanges) (Alles, Kogan, and Vasarhelyi, 2004; Bumgardner,

2003; Mulherin, 2007). Additionally, communities that used to rely on the economic and

investment opportunities that these companies brought to their local areas are now struggling to

meet local commitments. In some instances, the unemployment rate in some of these

communities has become untenable and detrimental to the formation and stability of many

families. Unfortunately, many of these cases are due to the impact of the Sarbanes-Oxley Act on

small-sized publicly traded companies and their inability to meet financial obligations and

commitments. As a result, in addition to understanding the “lived experiences” of the small-sized

publicly traded companies’ vis-à-vis their struggles with the SOX Act, this research will also

examine the impacts and implications of the Sarbanes-Oxley Act on the local communities

through the lived experiences of the research participants.

Evidence Justifying the Research Problem

Some of the problems that these small-sized publicly traded companies are facing are not

just the financial cost of implementing and complying with the law, but the impact of the law on

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their ability to grow their businesses. The American Stock Exchange Chairman and CEO, Neal

L. Wolkoff, in the Wall Street journal of August 15th

2005 stated that “While the intent [of the

Act] was laudable, the new regulations made no distinction between a [multi] billion-dollar

large-cap company and a $75 million small-cap one. This [unknown financial burden and

problem with the implementations of the law] has made it extremely difficult for small

companies to compete and grow in this regulatory environment” (para. 1). Wolkoff (2005) also

went on to say that “A $500,000 auditing bill may be a drop in the bucket for a company with

$10 billion market-caps; for a $100 million company, it’s significant” (para.7). As a result,

complying with the SOX Act has been detrimental and burdensome to the viabilities of many

small-sized publicly traded companies. Christensen, a director with the Protiviti research

company, reiterated in the Global Association of Risk Professionals article of August 16th

2012

the financial hardship that the implementation and compliance requirements has had on small-

sized publicly traded companies; he stated that “Sarbanes-Oxley compliance budget for the

majority of small organizations is [about] $100,000 annually” (para, 15).

Deficiencies in Evidence

Paradoxically, because of the lack of adequate research studies on the impact of the SOX

Act on small-sized publicly traded companies and the communities they operate in, the enormous

deprivation caused by the law on the operationalization of the American publicly traded

companies, especially the small-sized companies, has been relatively unknown to the general

public. However, the hope is that this study will present a fair and undistorted examination of

the impact of the Sarbanes-Oxley Act (SOX) through the “lived experiences” of the small-sized

publicly traded companies (participants). Subsequently, the anticipation is that the research

findings will help bring to the open the ambiguity, and perhaps the unfairness, of the Sarbanes-

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Oxley Act on the issue of competitiveness and the abilities of small-sized businesses to compete

equitably with their foreign and domestic competitions.

Audience

This Act required that all publicly traded companies provide accurate and reliable

accounting and financial reports to the Securities and Exchange Commission (Bumgardner,

2003; Wagner and Dittmar, 2006). Essentially, the goal of this research study is to spark some

intellectual debates amongst the stakeholders i.e., scholars, business executives, governmental

officials, and the American general public. To do that, this study will examine and illustrate the

“lived experiences” of the small-sized publicly traded companies’ (participants) vis-à-vis the

impact of the Sarbanes-Oxley Act on their businesses and the communities they operate in;

inevitably the hope is that this research study will help to open-up the conversational debates

whether there is a place for the Sarbanes-Oxley Act in today’s business environments.

Significance Statement

As a vibrant and dependable economic generator for this nation, small-sized businesses

through their ability to invest in hiring and growing the American middle-class population, have

a strong and important role to play in the revitalization of the nation’s economic growth

(National Economic Council, 2011). As such, this research study will examine the significance

of the economic impact of the SOX Act on both the small-sized publicly traded companies and

the local communities that depend on their economic vitality. As a correlative inference, it is

anticipated that any financial or economic impact felt by the small-sized companies, because of

the SOX Act, will most likely have a devastating and detrimental effect on the economic

relationships and partnerships that existed between these companies and their local communities,

especially the employment prospects of the local people (communities). Subsequently, the local

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economy and employment opportunities will be negatively impacted and unemployment (and

perhaps criminalities) will most likely become an inevitable consequence that will befall these

local communities.

Positionality Statement

My position, as the researcher and author of this thesis, has always been in support of

fairness and equitability in any and every situation, whether in securities marketplaces and/or in

life. Additionally, I am very much in agreement with the intent of the law and the preventative

measures that the law was purported to cover and protect. I am also very much in agreement

with the proponents of the law who say that a strong regulatory law is needed to protect a system

that is too open and has no true oversight mechanism to control and manage the excessiveness of

the executives who manage these publicly traded companies. However, the problematic aspect

of the law, as far as some people are concerned, is the impact of the law on the small-sized

publicly traded businesses, and the communities that depend on their existence and viabilities.

As a matter of transparency, this is where my position diverged from the ‘goodness’ (the good

intention) of the law, and somewhat aligned with the people who believed that the law may have

been too broad and restrictive, especially toward the small-sized publicly traded businesses in

America.

Author’s Background

My background is in retail and restaurant management. I have managed over 5 retail and

restaurant outlets for over 20 years. I am a person who believes that leaders have a responsibility

to both their organizations and employees. Anyone who aspires to be a leader must first be ready

to serve. I grew up in a society (Nigeria) where people appreciated any and every little thing that

they were blessed with; my parents, especially my mother being a small trader, raised and

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instilled in us, her children, a sense of appreciation for hard work and standing up for one’s

principles. More importantly, my parents raised us to be ethical in everything that we do and to

be mindful and respectful of other people’s hard work. Perhaps, that is where I got my

appreciation for small businesses and the sense for working as a servant, because when a leader

work as a servant, he/she has a better understanding and a higher level of appreciation for the

points of view of the followers. Yukl (2013, p. 25) stated that “Leaders effectiveness is

occasionally measured in terms of the leader’s contribution to the quality of group processes, as

perceived by followers or by outside observers.”

More importantly, I wholeheartedly agree with Yukl’s (2013) statement that "it is

obvious that a person can be a leader without being a manager and a person can be a manger

without leading" (p. 6). The fact is that a good leader must be level-headed and competent to

fairly deal with all the nuances of the followers’ issues. These parts of leadership skills and

abilities are what differentiate a leader from a manager.

Positionality Statement – Summation

The premise behind this phenomenological research project is to conduct and produce a

rigorous research study that is credible and transferable. More importantly, it is the

responsibility of a researcher to be reasonably cognizant of his/her biases and prejudices by

concentrating on conducting a rigorous, credible, and transferable research. This research

project will utilize the qualitative research methodology to conduct direct one-on-one interviews

with selected small-sized publicly traded company officers, to understand the full scope of the

impact of the Sarbanes-Oxley Act on their businesses and communities.

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Purpose Statement and Research Primary Questions

This research study intends to examine the “lived experiences” of the small-sized

publicly traded companies through interviewing the officers of these companies to find out how

SOX Act has impacted their ability to operationally control the destiny of their businesses from

2002 through 2016, and the impact of the law on the local communities they operate in. These

organizations, in many cases, are vulnerable and do not have a strong voice that can represent

their interests at the hall of power (the U.S. Congress) or appeal the egregious regulatory law that

hurts not just the companies’ financial bottomline, but also has the possibility to hurt the local

communities where their businesses operate in. Therefore, the purpose and goal of this

phenomenological research study is to examine the “lived experiences” of the small-sized

publicly traded companies in America (participants) vis-à-vis how the Sarbanes-Oxley Act, a

regulatory Act, has impacted their ability to manage their businesses and help grow the economic

vitality of the communities they operate in (Berenson, 2005: Switzer, 2007).

Research primary questions

Question #1: How do current or former officers of small-sized publicly traded companies

describe their experiences of the Sarbanes-Oxley Act on their businesses?

Question #2: How do current or former officers of small-sized publicly traded companies

perceive the impact of the SOX Act on the communities they operate in?

Theoretical Framework

This research study will examine the impact of the Sarbanes-Oxley Act (the

phenomenon) on small-sized publicly traded companies and their communities through the lens

of the liminality theoretical framework. Liminality is a theory that was first developed by

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Arnold Van Gennep in the Rites de passage (1960), and then enhanced and expanded upon by

Anthropologist Victor Turner (1967).

Historical background on the theoretical framework - Liminality

The history of liminality was based on anthropological studies that were first conducted

and theorized by Arnold van Gennep in 1908 to explain the religious rites (rituals) that are

practiced in many of the semicivilized societies around the world, especially in Africa. The

theoretical framework, liminality, was monographed by Arnold van Gennep and titled “Les rites

de passage.” The first edition of the book was written in French in 1908; however, the English

translated version was written in 1960 by Monika B. Vizedom. Van Gennep (1960) laid the

foundation for the theory of liminality. In his attempt to articulate the differences among the

rites of passages in his “les rites de passage,” Van Gennep found it necessary to create and

distinguish the three different phases in the liminal process of ritual practices. Van Gennep

(1960) stated that “Because of the importance of these transitions, I think it is legitimate to single

out rites of passage as a special category, which under further analysis may be subdivided into

rites of separation, transition rites, and rites of incorporation” (p. 10 & 11). Van Gennep (1960)

also expatiated on the functions of the three rites of passage he articulated (separation, transition,

and incorporation). He stated that the

“Rites of separation are prominent in funeral ceremonies, rites of incorporation at

marriages. Transition rites may play an important part, for instance, in pregnancy,

betrothal, and initiation; or they may be reduced to a minimum in adoption, in the

delivery of a second child, in remarriage, or in passage from the second to the

third age group” (Van Gennep, 1960, p. 11).

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As a way to put the religious ritual processes in liminal terms, Van Gennep (1960)

proposed “to call the rites of separation from a previous world, preliminal rites, those executed

during the transitional stage liminal (or threshold) rites, and the ceremonies of incorporation into

the new world postliminal rites” (p. 21). Even though the rites of passage and the liminal

process were very well articulated and written by Arnold van Gennep in his monograph of 1908

(and the subsequent English translation in 1960); the fact still remains that the theory needed

more in-depth research study.

As a true scholar and theorist that he was, Van Gennep (1960) acknowledged that the

studies of religious rituals have made “great progress in recent years, but we are still far from

knowing either the function or the manner of operation of every single rite, and we lack the

knowledge necessary to construct a definitive classification of rites” (p. 4). With this clear

admission and acknowledgement that more research is needed to expand on the theory of

liminality and the religious rituals of the semicivilized societies, hence comes the in-depth and

expanded writings on the theory of liminality and the ritual practices of the semicivilized people

of Ndembu in the Northeastern region of Zambia by Victor Turner in 1967. Turner’s book was

titled “The forest of symbols: Aspect of Ndembu ritual.” Like many transitional societies and

cultures, the ancient African traditions and rituals are withering away and many of their religious

rituals have been discontinued.

Turner (1967) posited that “In many parts of Zambia the ancient religious ideas and

practices of the Africans are dying out through contact with the white man and his ways” (p. 2).

This is a society (Ndembu) that is constantly on the move, as Turner (1967) pointed out, the

Ndembu society is “a society whose villages move widely and frequently over space and often

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tend to split, even to fragment, through time” (p. 3). As a consequence, “Individuals circulate

continually through these moving villages” Turner expressed (p. 3).

As an anthropologist, Victor Turner (1967) expanded on the rites of passage and the

liminal process monographed by Van Gennep (1908 & 1960), through his studies of the Ndembu

people of Zambia. In his expatiated and extensive studies of the Ndembu people, Turner saw in

them compatibility with Van Gennep (1908) monograph “Les rites de passage.” Turner

described the life-crisis ritual in the Ndembu society as the process (or event) that we, as

individuals and society, sometimes experience or see as important celebratory or ceremonial

events. In other words, Turner essentially described these life-crisis or transitional events (or

occasions) as a liminal phase in one’s life that included the birth of a new baby, the puberty

phase of a young adult, and the death of a sick or elderly person. As such, Turner (1967) stated

that “In most of the world’s simpler societies and in many “civilized” societies, too, there are a

number of ceremonies or rituals designed to mark the transition from one phase of life or social

status to another” (p. 7). These “crisis” ceremonies as Turner (1967) put it “not only concern the

individuals on whom they are centered, but also mark changes in the relationships of all the

people connected with them by ties of blood, marriage, cash, political, control, and in many other

ways” (p. 7).

In most societies that practice these types of transitional ritual activities, the neophytes

are rarely seen, and if they are ever seen, they are basically an “invisible” being. Turner (1967)

put it more concisely; he stated that “Since neophytes are not only structurally “invisible”

(though physically visible) and ritually polluting, they are very commonly secluded, partially or

completely, from the realm of culturally defined and ordered states and statuses” (p. 98).

Another symbolic way liminal neophytes are portrayed is as sexless, limbo-like, and transitional-

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beings. Turner (1967) explained it this way, he stated that “It is consistent with this to find that

in liminal situations (in kinship-dominated societies) neophytes are sometimes treated or

symbolically represented as being neither male nor female” (p. 98). More importantly, in many

of these societies that practice these religious rituals, the neophytes are temporarily stripped of

their basic human rights while they are going through the ritual process, i.e., property, human

and civic rights etc. Turner (1967) stated that “A further structurally negative characteristic of

transitional beings is that they have nothing. They have no status, property, insignia, secular

clothing, rank, kinship position, nothing to demarcate them structurally from their fellows” (p. 98

& 99).

As a religious ritual, the transitional process goes beyond what many untrained eyes and

observers would understand. However, in these semicivilized societies, these are ceremonial

rituals that have to be performed and adhered to in order for them to avert any bad omens.

Conversely, in every nature-related degeneration and decomposition processes something anew

is almost always reborn; likewise similar phenomenon transpires in the liminal transitional

process. Turner gave example of occasions when grown men are chased out of ceremonious

performances because they were not circumcised in the bush as the tradition and custom called

for. According to the Ndembu custom, Turner (1967) explained, men were “chased off because

they had only been circumcised at the Mission Hospital and had not undergone the full bush

seclusion according to the orthodox Ndembu rite” (p. 102). These biologically matured men,

Turner (1967) stated, “had not been “made men” by the proper ritual procedures. It is the ritual

and the esoteric teaching which grows girls and makes men” (p. 102).

In his second book, Victor Turner in 1969 wrote another in-depth and fascinating

anthropological book titled “The Ritual Process: Structure and Anti-Structure.” This book

25

expanded on his 1967 book that discussed the ritual rites of the Ndembu people of Zambia. In

this book, however, Turner expanded on the relationship between liminality and the structural

makeup of the community (the communitas) that practiced these religious rituals. According to

Turner (1969), the liminal condition of the people going through religious rituals is very

precarious and ambiguous. He stated that “The attributes of liminality or of liminal personae

(“threshold people”) are necessarily ambiguous, since this condition and these persons elude or

slip through the network of classifications that normally locate states and positions in cultural

space” (p. 95). He further expanded on the transitional state that the neophytes go through when

they are in a liminal state; Turner (1969) stated that “Liminal entities are neither here nor there;

they are betwixt and between the positions assigned and arrayed by law, custom, convention, and

ceremonial” (p. 95)

The state of limbo-like that the neophytes are in are ambiguous and neither “here nor

there.” However, the societies that perform and practice these “transitional” rituals of liminality

are rich in variety of symbols that represent their various rites of passage rituals. As such,

liminality is seen as a fair and equitable process that allows the ordinary citizenries of these

societies to have strong participatory involvement in their society’s way of life. Turner (1969)

stated that “Liminality implies that the high could not be high unless the low existed, and he who

is high must experience what it is like to be low” (p. 97). Finally, the liminal state of a neophyte

is like someone who is in a paralyzed state and can’t move, talk or perform any function for

himself or herself. As such, they are powerless and at the mercy of the powerful. Turner (1969)

put it more eloquently that a neophyte is “a tabula rasa, a blank slate, on which is inscribed the

knowledge and wisdom of the group, in those respects that pertain to the new status” (p. 103).

26

The alignment of qualitative research approach and the construct of theoretical framework

Qualitative research approach allows for a researcher to construct his/her theory under the

lens of a theoretical framework as a guide and frame for navigating the foundation and structure

that the research study intends to stand on. However, until recently, Anfara and Mertz (2006)

noted that “Students as well as experienced researchers who employ qualitative methods

frequently have trouble identifying and using theoretical framework in their research” (p. xiii).

They went on to also state that “Currently, no comprehensive discussion of theoretical

frameworks exists to assist those engaged in qualitative research” (p. xiii). As a reminder of the

difference between qualitative and quantitative research methods, Yin (2009) asserted that the

aim of qualitative research method is to find an analytical generalizable instrument that is

comparable to the statistical generalization in a quantitative research, hence the utilization of

theoretical framework in qualitative research.

As a phenomenological interpretative research study, it is important that this research

utilizes the most rigorous theoretical framework that will allow it to capture the phenomenon that

the study intends to investigate. The liminality theoretical framework posits to have the ability to

put in context the transitional “betwixt and between” periods of the impact of the Sarbanes-

Oxley Act on small-sized publicly traded companies and the communities they operate in (from

2002 through 2016). This timeline refers to the liminal period that impacted small-sized publicly

traded companies and their local communities at the hand of the Sarbanes-Oxley Act. Cook-

Sather (2006, p. 1) described the term ‘betwixt and between’ as a “phrase that Victor Turner used

to capture the essence of his theory of “liminality”.” More appropriately, Turner (1967)

described the term ‘betwixt and between’ as a phenomenon that is “neither here nor there; they

27

are betwixt and between the positions assigned and arrayed by law, custom, convention and

ceremonial” (p. 97).

The liminal timeline for the implementation of the sections in the Sarbanes-Oxley Act

As a regulatory law that was meant to monitor the accounting and internal control

governance of publicly traded companies in America, the Sarbanes-Oxley Act was enacted with

the intention of creating transparency in the U.S. securities markets, thus help boost the

confidence of the investing communities and the companies that utilizes the marketplace funding

system. The timeline for the implementation of all the sections in the Sarbanes-Oxley Act

started in June of 2002 continued through November of 2004 (Prakash, 2008). However, in July

2010, President Obama signed into law another regulatory Act called the Wall Street Reform and

Consumer Protection Act; this Act was enacted to reform the activities of banks and financial

institutions on Wall Street and to also protect the American Consumers. The Act is also known

as Dodd-Frank Act; named after the two legislators who helped enact the law, former Senator

Christopher Dodd of Connecticut and former Congressman Barney Frank of Massachusetts.

Figure#1: presents the timeline for the implementation of the SOX Act

(Sarbanes-Oxley Act timeline was retrieved from the Smrity Prakash, July 2008, Dissertation)

28

The alignment of the theoretical framework and the research problem of practice

The problem of practice is the “space” from 2002 when the Sarbanes-Oxley Act was

passed and signed into law and now (2016); the Act has impacted and devastated the financial

and economic viability of many small-sized publicly traded companies. More importantly, the

law has inadvertently devastated the American people and communities that the law was

supposed to protect. As such, this research study will examine the “lived experiences” of the

vulnerable small-sized publicly traded companies (participants) regarding the impact of the

Sarbanes-Oxley Act on their ability to operate profitable businesses and also be contributory

entities in the economic prosperity of their local communities. In the process, this study will

utilize the liminality theoretical framework and the phenomenological research tradition (a

qualitative research tradition) to investigate the impact of the SOX Act on the small-sized

publicly traded businesses and their local communities from 2002 through 2016 in America.

For this study to produce a reliable and credible outcome, it is important that a rigorous

theoretical framework is used to validate and authenticate the problem of practice as it is stated.

However, in order to do so, this study has to elect a theoretical framework that is strong in its

ability to theorize the phenomenon (the impact of the Sarbanes-Oxley Act on small-sized

businesses and their local communities). Hence the election of liminality theoretical framework;

liminality theory will help construct the framework that this study will use in investigating and

evaluating the impact of the Sarbanes-Oxley Act on small-sized publicly traded businesses and

their local communities since the enactment of the Act in 2002. Anfara (1997) stated that

liminality is a theory that can explain “social states in which participants are stripped of their

usual status and authority” (para. 7). In the past thirteen years, small-sized publicly traded

businesses in America, and the communities they operate in, have been economically devastated

29

by the requirements of the Sarbanes-Oxley Act on their businesses, thereby leaving them without

the ability to compete favorably with their domestic and international competitions.

Consequently, the SOX Act has prevented many small-sized publicly traded businesses from

helping their local communities with the economic revitalization that they needed.

As a theory, liminality has been reported to be a theory that can theorize the ‘betwixt and

between’ space representing the ‘state of limbo’ of the neophytes. However, to take it away

from its usual anthropological environments, and bring it closer to the commercially-oriented

environments; this research study will convert and reconstitute the liminality theoretical

framework to align with the commercially and business-oriented phenomenon that the research

study is going to examine. Though liminality theory will be outside of its usual environment, it

is believed that liminality theory can be as effective and impactful wherever it is utilized. For

example, Sharon Zukin (1991), an urban sociologist and a criticalist, transformed and

transitioned the liminality theory outside of its anthological environment into the realm of socio-

political and economical environments. She shifted the theory from the anthropological settings

that it originated from into a socio-political and economically based setting. This shift has

forever changed the characteristics of liminality theory. Therefore, just as Zukin (1991) utilizes

the liminality theoretical framework to argue and position her socio-political and economical

theory, this study will utilize the liminality theory to evaluate, predict and speculate on what

transpired in the ‘operational lives’ of small-sized publicly traded companies and the

communities they operate in from 2002 till now (2016).

The alignment of the theoretical framework (Liminality) and the research primary questions

This research study posits that with the liminality theory, this study will be able to

investigate and answer the following primary questions:

30

Question #1: How do current or former officers of small-sized publicly traded companies

describe their experiences of the Sarbanes-Oxley Act on their businesses?

Question #2: How do current or former officers of small-sized publicly traded companies

perceive the impact of the SOX Act on the communities they operate in?

As a consequent of utilizing liminality, this theory will afford the researcher the

opportunity to dig deeper and theorize the impact that the SOX Act has had on the small-sized

publicly traded companies and their local communities since the law came into effect in 2002.

Participating small-sized publicly traded company officers will be asked to reflect back to 2002

when the Act was first enacted and recall what life was like for them (and their local

communities). The hope is to try and make-sense of the impact that the SOX Act has inflicted on

the American publicly traded businesses, individually and collectively, especially the small-sized

publicly traded companies in America. Liminality theory will help facilitate two objectives;

first, it will help position this research study to examine the impact of the SOX Act on small-

sized companies and their local communities; secondly, it will also allow the research findings to

be authenticable, relevant, and transferable.

Conclusion

Liminality, as the theoretical framework, will help guide and direct the investigatory

processes and findings of this study. Additionally, the combined usage of the critical theory and

interpretive paradigms as theories working in concert with phenomenological research approach

(a qualitative research tradition) will allow the participants to tell their “lived experience” stories

undistorted and openly. This experience can only enhance the outcome of the research study for

the better.

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Chapter 2: Literature Review

Introduction

As a vital component of the economic growth and vitality of the United States of

America, small-sized businesses are seen as the core foundation with which the middle-class

population in America can be built upon. Therefore, issues affecting their ability to function in a

less-restrictive business environment should be paramount. This research study intends to

examine the impact of the Sarbanes-Oxley Act on small-sized publicly traded businesses and the

communities they operate in. For instance in the hospitality industry, restaurants in particular,

governmental regulations have become very cumbersome for some of the small-sized publicly

traded restaurant companies. Proponents of the regulations argued that the regulations are there

to protect the general public and keep our food safe. However, the issue is that in an industry

where large multi-national corporations are striving and expanding, the true effects of these

regulations are felt mostly by the small-sized restaurants that are struggling to compete and

survive in an environment that is dominated by the giant multi-national restaurant corporations.

Since 2002 when Sarbanes-Oxley Act was enacted and signed into law, the effect has

been legendarily detrimental to the business communities, but more so with the small-sized

businesses. Even though this Act (SOX), and many like it, were supposedly enacted to help

create an environment of transparency; however, the true effects have been nothing but

detrimental to the small-sized businesses. For example, in addition to the Sarbanes-Oxley Act,

the federal government has enacted regulations that require businesses, of certain numbers of

full-time employees, to provide health-care insurance for their employees irrespective of the

companies’ ability to do so (i.e., Affordable Care Act, also known as Obamacare). In addition to

the cumbersome regulations, the hospitality industry, for example, is currently experiencing

32

demand for increase in minimum wage. These stringent regulatory requirements that the

industry, and many other industries in the economy, are facing, is one major reason why many of

the small-sized publicly traded businesses are opting out and delisting themselves from the

securities markets (stock exchanges) and going private.

In America, eating-out and going to the next door restaurants is an American

phenomenon. For decades, the restaurant industry has provided the American society with

incredible foods and services that are essential and cherished. Eating-out at the hamburger

restaurants, coffee and donut shops, and the traditional dine-in restaurants, is what Americans are

known for, and part of the society’s DNA and lifestyle. More importantly, these restaurants,

especially the small-sized restaurants, provide the much needed employment opportunities to

folks who wouldn’t have had the chance to move up the economic ladder. Therefore, as part of

the study, this research project will investigate and try to make sense of the impact of the SOX

Act on small-sized publicly traded companies and the communities they operate in.

Finally, this chapter will review literature written not just on the impact of the Sarbanes-

Oxley Act on small-sized publicly traded businesses in America, but also briefly review two

additional federal regulatory Acts that have equally devastated many small-sized publicly traded

businesses in various industries. This review will begin with literature on the Sarbanes-Oxley

Act and then transition to a brief literature review on the two additional federal regulatory Acts:

Dodd-Frank Act and the Affordable Care Act (also known as Obamacare).

Literature Review on the Sarbanes-Oxley Act (Also known as SOX)

The Implication of the Sarbanes-Oxley Act on American Businesses

In her 2005 article on the Sarbanes-Oxley Act, Lara Bergen, discussed in detail the

implications of the Sarbanes-Oxley Act as it affect the public companies in the U.S. securities

33

markets. She began by explaining the intent behind the law. Bergen (2005) stated that “The

Sarbanes-Oxley Act (also known as SARBOX or SOX) sought to address these concerns through

making executives responsible for company accounting statements, redefining the relationships

between corporations and their auditors, and restructuring the internal audit systems of public

corporations” (para. 2). Bergen also noted that the effect of the SOX law on public companies

has been incredibly costly. She argues that “implementing this control structure has proven more

expensive than expected, with 2004 SOX costs estimated to have risen 62% in July over January

expectations” (para. 11). She discussed how the Act has impacted small-sized public companies.

In her analysis, Bergen (2005) stated that

“Mid-sized and small public companies have incurred relatively larger costs in

implementing SOX. Given that the professional costs and managerial time varies

little with company size, small and mid-sized companies must allocate a higher

percentage of revenue to SOX compliance (Morgenstern and Nealis, 2004)”

(Bergen, 2005, para. 14).

It is without a doubt that after the enactment of the Sarbanes-Oxley Act was passed and

signed by the President of the United States, the critics of the law were relentless in their

criticism of the law, pointing to some of the flaws in the law and how negatively impactful it has

affected the markets, especially the small-sized businesses in America. In the Wall Street

Journal of February 10th

of 2004, Solomon and Bryan-Low, staff reporters, stated that “While

there is agreement that governance rules are needed, some companies cited the increased cost of

complying.”The real cost isn't the incremental dollars, it is having people that should be focused

on the business focused instead on complying with the details of the rules," said Peter Bible,

chief accounting officer at General Motors Corp” (para. 4). Therefore, it is fair to say that this

34

law, Sarbanes-Oxley Act, has attracted enormous amount of proponents and opponents

validating and arguing their points via the implementation of the law. Edison (2006) stated in his

article titled ‘Exploring the impact of Sarbanes-Oxley’ that “Today, Sarbanes-Oxley remains an

extremely hot topic in business and legal circles. Proponents of the most sweeping legislation to

affect corporations since the 1933 and 1934 securities acts contend that Sarbanes-Oxley has

cleaned up corporate America, leading us into a new age of responsibility and accountability”

(para. 3). He went on to say that “Critics, on the other hand, claim that despite the noble

intentions of Congress, Sarbanes-Oxley has been nothing but intrusive, expensive, and heavy-

handed. The truth probably lies somewhere in the middle” (para 4).

In addition, Edison also discussed some provisions of the law that impact the American

corporations. One major provision in the law that he touched on was the accounting reports that

CEOs and CFOs were required to attest and affirm for the accuracy of their company’s

accounting reports. Edison (2006) stated that “The major provisions of Sarbanes-Oxley are well-

known. Sarbanes-Oxley requires that chief executive officers and chief financial officers of

public companies sign off on a company’s financial reports. No longer can the CEO or CFO

plead ignorance. The buck now clearly stops at the top” (para. 7). Henry and Borrus (2003)

stressed that even though section 404 of the Sarbanes-Oxley Act was hard for many of the

business executives to swallow, they’ve found another area of the law that is equally troubling.

Henry and Borrus noted that the “requirements to add more independent directors, especially

those with financial expertise, have set off a scramble for talent at scores of companies” (para.

3). And in addition to that, business executives are very frustrated and concerned with the

amount of internal control intrusion that the SOX law will be getting into through section 404.

Henry and Borrus (2003) stated that the “internal control rules are by far the most contentious

35

and potentially onerous provisions. Industry experts say that as a result of these rules, auditing

costs are likely to double, while the total tab for compliance could top $7 billion in the first year”

(para. 4).

Berenson (2005), on the other hand, discussed the corporate greed of corporations like

Enron and WorldCom that stood as the catalyst that forced the hand of Congress to enact one of

the strictest corporate governance laws that American public companies have ever seen or

experienced. Berenson, however, does not think that the misdeed of some bad corporate

executives should have an adverse effect on small family owned businesses in America. He

noted that “SOX requires CPAs that audit public companies to perform new additional audit

procedures, and, as a result, audit fees have increased by as much as 50% over the last two

years” (p. 7). He also noted that “Not only is additional time required to comply with SOX, but

it has increased the demand for accountants, resulting in a costly shortage of professionals. This

cost has manifested itself in increased fees for all services provided by CPA firms” (p. 7).

However, one major impact of the law that may have a terrible effect on small family businesses,

according to Berenson, is the requirement of the law that states that public companies must

report on annual bases, the effectiveness of their internal control system. What this means,

according to Berenson, is that “As management of public companies deals with this requirement,

it is placing demands on vendors, many of whom are family owned businesses. These demands

include requests to provide improved controls and procedures, such as new electronic invoicing

methods. The inability of family owned businesses to meet these requests may result in the loss

of public company customers” (p. 8).

36

The Impact of Sarbanes-Oxley Act on Small-Sized Publicly Traded Businesses in America

Many of the opponents of the Sarbanes-Oxley Act have been small-sized public

companies and many of their leaders have been very vocal in their opposition to the law.

However, to better understand the cumulative impacts of the Sarbanes-Oxley Act on small-sized

publicly traded companies in America, Kamar, Karaca-Mandic & Talley (2007) reviewed and

studied three distinct areas in the Act that impacted small-sized businesses the most: ‘compliance

costs, stock price reactions, and firms’ decisions to exit regulated securities markets’. They

began by initially presenting a positive aspect of the Act. They asserted that “SOX and the rules

implementing it have transformed the reporting obligations of public firms. Most importantly,

SOX requires management and an outside auditor to assess annually the effectiveness of the

firm’s internal controls over financial reporting” (p. 1). In addition, they added that SOX has

“tightens disclosure rules, requires management to certify the firm’s periodic reports, strengthens

board independence and financial literacy requirements, and raises auditor independence

standards” (p. 1)

However, Kamar, Karaca-Mandic & Talley (2007) laid out the impacts that the various

sections in the Act have had on every publicly traded businesses in America, but more

specifically on the small-sized companies. As a public regulatory Act that was supposed to

harness transparency in the U.S. securities markets, the financial costs are disproportionately felt

mostly by the small-sized businesses. According to Kamar, Karaca-Mandic & Talley’s (2007, p.

9) review of the compliance costs area of the SOX Act; they stated that “Small firms may incur

relatively higher SOX-related compliance costs for a number of reasons.” The reason they gave

are the following three substantive examples. The first example was that small-sized publicly

traded companies may experience disproportionate large increase in “audit fees because some of

37

the costs associated with establishing, maintaining, and evaluating internal controls over

financial reporting are fixed and because small firms often lack the staff to perform in-house the

additional accounting work (Wolkoff (2005), Carney (2006), SEC (2006))” (p. 9). Secondly,

they argued that small-sized businesses have raised concerns about the complexity and ambiguity

in the audit standards that was supposed to govern the auditing of their businesses. Kamar,

Karaca-Mandic & Talley (2007) stated that “Complex standards can pose a problem for all firms,

but small firms are affected more because they tend to lack in-house staff to respond to the new

environment” (p. 9 & 10). Finally, their last example was the fact that “the increased demand for

accounting services following the enactment of SOX raised audit costs for small firms in

particular” (p. 10). According to Kamar, Karaca-Mandic & Talley (2007) “Survey results

indicate that, after the enactment of SOX, large accounting firms stopped working with small

clients, citing lack of profitability, risk, and capacity constraints, forcing these clients to seek

other accountants (GAO (2006))” (p 10).

As a confirmation vis-à-vis the compliance cost of the Sarbanes-Oxley Act on small-

sized publicly traded companies in America, Kamar, Karaca-Mandic & Talley (2007) cited the

study credited to the U.S. Government Accountability Office (GAO). They stated that “The U.S.

Government Accountability Office (GAO) similarly reports that small firms have experienced a

greater increase in audit-related costs than have large firms since the enactment of SOX (GAO

(2006))” (p. 13). Kamar, Karaca-Mandic & Talley (2007) went on to state that “The study finds

that audit fees constituted a higher percentage of revenues for small public firms before the

enactment of SOX, and that this disparity increased after the enactment of SOX, especially for

small firms that filed internal control reports” (p. 13).

38

As for the second area in the SOX Act that impacted small-sized businesses, Kamar,

Karaca-Mandic & Talley (2007) reviewed the stock price reactions. In this particular area, they

looked at all the surveys and studies that have been conducted on the effects of the SOX Act on

publicly traded companies in the market (before and after the enactment of the SOX Act), but

more so on the small-sized businesses. An example of their review was the studies and surveys

conducted by Jain and Rezaee (2006) and Engel, Hayes, and Wang (2007). In their review,

Kamar, Karaca-Mandic & Talley (2007) stated that “Jain and Rezaee (2006) examine events

between June 25, 2002 (when SOX was introduced in Senate) and July 30, 2002 (when the

President signed SOX) find positive returns” (p. 16). However, Kamar, Karaca-Mandic & Talley

(2007) went on to state that Jain and Rezaee (2006) “find a positive relation between these

returns and practices SOX sought to promote: effective corporate governance, reliable financial

reporting, and credible audit functions. This suggests that the firms least affected by SOX

experienced higher returns” (p. 16). Kamar, Karaca-Mandic & Talley (2007) also reviewed the

article by Engel, Hayes, and Wang (2007). In their review, they stated that Engel, Hayes, and

Wang (2007) conducted their study between February 13, 2002 and July 30, 2002 and found out

that the “returns were negative and positively related to firm market value and stock turnover,

indicating that smaller and less actively traded firms were particularly harmed by SOX” (p. 16).

Overall, Kamar, Karaca-Mandic & Talley (2007) argues that “while the event studies provide

mixed evidence regarding the effect of SOX on large firms; they appear to be consistent in

finding a negative effect on small firms” (p. 18).

The last area of concern in the SOX Act that Kamar, Karaca-Mandic & Talley (2007)

reviewed and discussed was in the area of deregistration of publicly traded companies from the

securities markets. They began by stating and amplifying what the law is regarding de-

39

enlistment from the securities markets, and went on to describe the difference between a “going

private” and “going dark” business entities. Kamar, Karaca-Mandic & Talley (2007) stated that

“Section 12(g)(4) of the Securities and Exchange Act of 1934 provides that public firms can

deregister their stock with the SEC and suspend being subject to federal securities law once the

number of their shareholders drops below 300” (p. 18). In addition, they also stated that “Firms

can deregister by arranging for private acquirers to buy their entire stock (“going private”) or by

cashing out small shareholders to reduce the number of shareholders below 300 (“going dark”)”

(p. 18). However, their analytical believes was that “The multitude of factors affecting the

decision to deregister makes it difficult to isolate the effect of SOX on deregistration” (p. 21).

For example, they stated that financial market “liquidity around the enactment of SOX could

have increased the willingness of private investors to pursue acquisitions independent of SOX.

Similarly, the weakness of the public capital market at that time could have independently

encouraged firms to exit this market” (p. 21).

In their conclusion, even though the findings had some variables, Kamar, Karaca-Mandic

& Talley (2007) admitted that “Overall, the evidence offers qualified support for the view that

SOX had a negative effect on the value of small firms, at least initially.” However, they

qualified their findings by stressing that the evidence (or findings) should be interpreted with

caution because of the variables in the findings.

In his article, Switzer (2007) looked at the impact of the law in regards to small-sized

businesses in America. According to some of the literature that Switzer (2007) reviewed, it

seems as though some of the negative impact of the law on small-sized organizations are due, in

part, to the size of the board in those companies themselves. In his summation, Switzer asserted

that

40

“One of the criticisms of SOX is that it overly burdens small-cap firms. The main

result of this paper is that based on a model that reflects the endogeneity of

performance and a fairly extensive set of governance mechanisms, the net benefits

of SOX in the form of increased accountability of managers to act in

shareholders’ interest outweigh the costs of increased disclosure and compliance”

(Switzer, 2007, p. 665).

In addition, Switzer stated that “The findings show some similarities but also some striking

differences with the results on the interactions between control mechanisms and performance

found for large-cap firms, particularly U.S. based firms” (p. 665).

In a continued effort to truly understand the impact of Sarbanes-Oxley Act on the small-

sized businesses in America, Switzer and Tang (2009) wrote an article titled ‘The impact of

corporate governance on the performance of U.S. small-cap firms’. In the article they noted that

“One could argue that small-cap firms may be less prone to governance problems relative to

large firms, particularly if they are closely controlled. This could be due to alignment of

incentives of entrepreneur-managers, who have significant ownership stakes, with those of

outside shareholders” (p. 342). Additionally, in their research study, Switzer and Tang (2009)

linked the set of interacting governance mechanisms that jointly affect the performance of

sampled companies, and tested the natural “hypotheses of efficiency in governance for small-cap

firms to consider the significance of external and internal governance mechanisms on

performance after accounting for the simultaneous interactions between these variables” (p. 342).

The result of the hypothesis tested shows that there were supports for “the paradigm of

entrepreneurial CEO’s whose ownership is optimally aligned with performance. However, some

suboptimal deployment of governance mechanisms is observed for the sample as a whole. In

41

particular, excess leverage which significantly reduces firm value is observed” (p. 342).

Additionally, they also discovered that “while Sarbanes-Oxley Act compliance is difficult for

many of these firms, its passage does not adversely affect their performance” (p. 342), referring

to the small size companies.

In their quest to understand the impact of section 404 of the Sarbanes-Oxley Act on the

market and its unintended consequences, especially on the small-sized companies, Davern, Lee,

and Palafoutas (2005) stated that

“Section 404 of the Sarbanes-Oxley Act (the Act) is having a devastating impact

on AeA’s (American Electronic Association) small and medium sized member

companies. Skyrocketed implication costs have put high-tech companies in the

position of having to delay major projects at a time when many are struggling to

compete with low-cost competition from Asia.” (p. 1).

Davern et al. (2005) also stated that “AeA members companies, particularly its small and

medium-sized companies, were so alarmed at the problems of section 404’s implementation that

they requested we establish a national Section 404 committee” (p. 1). However, events seemed

to have shifted, because the SEC has decided to issue a guideline and the creation of an advisory

panel that will evaluate the impact of the law on smaller companies. According to Davern et al.

(2005) the difficulties that many of the smaller companies are facing in implementing section

404 of the law is forcing them to delist and go private.

The Critical Shifting Views on the Question of Implementation Cost of SOX

Wagner and Dittmar (2006) began their discussion by explaining the precipitated reason

why Congress of the United States enacted the Sarbanes-Oxley Act in 2002 as a way of

combating the rash corporate frauds that engulfed the markets in the early 2000s. In essence the

42

law was to improve the reliability of the securities markets and to give a confidence boost to the

American investors. Wagner & Dittmar (2006) stated that “understandably, most executives

wondered why they should be subjected to the same compliance burdens as those who had been

negligent or dishonest. Smaller companies in particular complained about the monopolization of

executives’ time and costs running into the millions of dollars” (p. 1). According to Wagner &

Dittmar (2006), the most strenuous part of the law (section 404) is the requirement that wanted

both the auditors and the CEOs and CFOs of public companies to authenticate and attest to the

accuracy of the accounting reports that come out of their companies. However, as Wagner and

Dittmar also indicated in their article, perhaps the tide is beginning to shift, because many are

beginning to see some light under the tunnel. Wagner & Dittmar (2006) stated that “In year two,

a number of companies have begun to standardize and consolidate key financial processes (often

in shared service centers); eliminate redundant information systems and unify multiple

platforms; minimize inconsistencies in data definitions” (p. 2).

Lublin and Scannell (2007) discussed the hefty cost that many corporations are incurring

due to the implementation requirement of the SOX law. They gave examples of how much it

cost to implement the requirement of the law. However, they also gave examples of companies

that were beginning to see some benefits come their way. Lublin and Scannell stated that

“Officials at the Carlsbad, Calif., biotechnology company think the costs are excessive. But they

say Sarbanes-Oxley helped to spur other changes that made Invitrogen a better-run business.

Directors meet more often without executives present” (para. 2). Furthermore, Lublin &

Scannell (2007) also cited the reports conducted by Corporate Executive Board, a Washington

research firm, that show an incredible drop in the weakness accounting reports that occurred

43

between 2005 and 2006. This was a 6.7% drop in material weakness accounting reports that

some companies were reporting to the Security and Exchange Commission (SEC).

The New Internal Control Requirement of the Sarbanes-Oxley Act

Bumgardner (2003) discussed how Sarbanes-Oxley Act has impacted the American

business communities. Part of what Bumgardner touched on were the major provisions in the

Sarbanes-Oxley Act. For example, he discussed the creation of the Public Company Accounting

Oversight Board (PCAOB). This board will be charged with the responsibility of overseeing the

conduct of the accounting firms (auditors) that audit public companies. Bumgardner (2003) also

discussed the functions of the audit committees and members of the board of directors under the

new law. He stated that “The audit committee of the board of directors at any public company

gains new power and responsibilities, and there are more safeguards to ensure that audit

committee members are not controlled by top management” (para. 12). Gordon (2003) went

back and traced the corporate debacles that transpired in the early 2000s, especially the corporate

governance failure at Enron. He stated that “The Enron case has seemed particularly disturbing

because the case represents a failed stress test for many institutions of US shareholder capitalism,

circa 1990s” (p. 3). He went on to assert that “The primary wrong doers in the Enron scandal

were the individual officers who were principally responsible for the integrity of the company’s

transactions and financial disclosure and who orchestrated the misleading, sometimes fraudulent,

transactions” (p.3).

Gordon (2003) argued that the Sarbanes-Oxley Act approach will help reduce or even

eliminate the board’s discretion to allow the company to engage in using an accounting system

that is opaque to the securities market. In his scalding comment on the board and why they

44

allowed the Enron executives to engage in such a risky activity, Gordon made the following

critical statement about the Enron’s board. He argues that

“The Board permitted Enron to be run in a way that significantly disabled the

monitoring customarily provided by public market institutions for large public

companies. In other words, of the internal and external monitoring dyad, the

Board’s decisions blinded the external monitors” (Gordon, 2003, p. 8).

To help understand the extent at which the SOX law has gone in overseeing the internal controls

of public companies, Broude and Prebil (2005) presented a survey report they had conducted at

the 2005 National Directors Institute in Chicago. In the survey, they presented some seriously

troubling numbers that are mindboggling. As for private companies, they stated that “The

Sarbanes-Oxley Act continues to have a significant impact on private organizations as 87% of

survey respondents felt that SOX or other corporate governance reform requirements have

impacted their organizations compared to 77% in 2004” (p. 2). Impact on the nonprofit

organizations was even more devastating than the private companies, because according to

Broude & Prebil (2005), “the impact of corporate governance reform on non-profit organizations

was even more apparent as 97% of non-profits responding to the survey felt that corporate

governance reform had impacted their organizations compared to 80% of for-profit

organizations” (p. 2). In addition to that, Broude & Prebil (2005) also stated that “private

organizations responding to our survey generally believe in the principles guiding corporate

governance regulation and in many areas are increasingly adopting corporate governance

reforms as best practices” (p. 2). However, Broude and Prebil put a caveat in the report by

saying that “the smaller organizations responding to our survey (those with under $300M in

45

revenue or annual budget) are more likely to choose not to adopt the higher-cost elements of

corporate governance reform” (p. 2).

Aguilera, Williams, Conley and Rupp (2006) explained the mechanisms behind the

international capital market systems. They alluded to the fact that scholars of corporate

governance see the world as been divided into two market systems. Scholars interpret the system

to basically be Anglo-American shareholder market systems and the Continental

European/Japanese stakeholder market systems. However, Aguilera et al. (2006) believes that

even though the Anglo-American capital market systems may be similar in many ways, they are

actually two totally different systems. Aguilera et al. (2006) stated that “We examine some

salient differences between the corporate governance arrangements in the US and the UK by

evaluating differing institutional investor composition and modes of action in the two markets,

and by exploring the implications of such differences for the varying importance of “corporate

responsibility” issues within the two countries” (p. 147). One major area that the UK market

system is fundamentally different from the US is in the functions of a CEO. In the UK, CEOs

are constraint compare to the US CEOs who relatively have a ‘hands off’ operational control

over their organizations. Aguilera et al. (2006) stated that “Ninety per cent of the UK’s largest

companies follow a dual strategic leadership pattern (Higgs, 2003), splitting the roles of the CEO

and the Chairman of the Board, as suggested by the Cadbury Committee in 1992 (Cadbury,

1992) and as now incorporated into the Combined Code on Corporate Governance (2003)” (p.

148). However, in the US, CEOs are usually also the Chairman of their boards. Aguilera et al.

(2006) contrasted the US CEOs from the UK by stating that

“Approximately 80 per cent of US companies, the CEO is also the Chairman of

the Board (Higgs, 2003), a concentration of power likely to inhibit effective

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monitoring. Both the US Congress and the New York Stock Exchange have

sought to enhance the effectiveness of the board in counter-balancing the power

of the CEO recently: Congress in the Sarbanes Oxley Act of 2002, by requiring

the audit committee to be comprised entirely of independent directors, and the

New York Stock Exchange, in its listing standards, by requiring listed companies

to have a majority of independent directors” (Aguilera et al., 2006, p. 148-149).

Cornelius and Kogut (2003) on the other hand, discussed the role of corporations in the

modern society. Some believe that corporations should be left alone to do what they do best

which is to provide goods and services to the society. However, the question of trying to

differentiate between shareholder and stakeholder is another issue entirely. Cornelius & Kogut

(2003) stated that “A dominant view of corporate governance is the primacy of the shareholder’s

interests in the residual profits of a firm and hence a right to exercise control over management”

(p. 45). In addition to that, they asserted that since shareholders are the last investors to get

dividend yields from the profits of their companies, they should have the right to monitor the

performance of management of the companies they are shareholders in. Furthermore, Cornelius

& Kogut (2003) argued that the collapse of Enron and Anderson saw hundreds of workers loss

their jobs and pensions (including their entire 401K). Because of what transpired at these places

(i.e., Enron and WorldCom), Cornelius & Kogut (2003) believed that “stakeholder perspective

would suggest that workers deserved representation in the board (or relevant oversight

committees) in order to safeguard their human capital and pension investments” (p. 48).

The Impact of SOX on the IT Infrastructure in the Publicly Traded Companies

Kaarst-Brown and Kelly (2005) discussed the issue of Information Technology (IT) as it

relate to the Sarbanes-Oxley internal controls requirement. They pointed out that Chief

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Information Officers (CIOs) of public companies have to be cognizant of some important

sections in the SOX law because of their core relevance. Kaarst-Brown & Kelly (2005) stated

that “The three most obvious sections of relevance for the CIOs are 302 and 404 because they

deal with the internal controls that a company has in place to ensure the accuracy of their data”

(p. 1).

In addition to sections 302 and 404, section 409 is also as important as the above

sections. According to Kaarst-Brown & Kelly (2005), they stressed that section 409 is the third

section of the law that CIOs have to be mindful of because of its “material changes affecting

financial disclosures must be reported on a rapid and current basis. This means systems must be

able to provide timely information within days, not weeks, of an event” (p. 1). At the end of the

day, the fact is that CIOs have to be considered a major actor in any company’s goal to meet the

SOX compliance requirement.

Kaarst-Brown & Kelly (2005) argues that “A CIO’s accountability extends beyond

systems boundaries. Non-compliance of any legislation opens a company to potential lawsuits

that would affect financials. If non-compliance is not disclosed in financial statements, this

would be considered non-compliance of SOX” (p. 2). Perhaps because of the importance of the

position of CIO to the internal controls compliance of a public company, the position may be

elevated to a senior executive level which means that eventually the position may be required to

attest to the accounting reports coming out of the companies.

Hall and Liedtka (2007) stressed the need for public companies to invest in their IT

system to meet the demand of the internal controls requirement of SOX, instead of outsourcing

the service to outside vendors. They cited a survey by Meta Group that shows that 25 percent of

corporations had no way of determining the appropriate IT sourcing response to SOX. In

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addition to that, 21 percent of corporations intended to outsource more in response to SOX

requirement, while 19 percent intend to outsource less. To better understand the effect of

outsourcing of IT, Hall & Liedtka (2007) stated that “Here, we analyze the potential of these

effects on corporate management’s responsibilities regarding firm oversight, internal control,

financial reporting, and shareholder protection. We conclude that SOX exacerbates several

preexisting risks of large-scale IT outsourcing and generates substantial new concerns” (p. 96).

The Impact of Sarbanes-Oxley Act on the Accounting Profession

Bazerman, Loewenstein, and Moore (2002) discussed issues surrounding the reason ‘why

good Accountant do bad audits.’ They noted that the Sarbanes-Oxley Act has shifted the

paradigm, because now the law requires broader executives’ responsibilities and accountabilities.

Bazerman et al. (2002) stated that “Perhaps most important, though, it puts the accounting

industry under tightened federal oversight” (p. 1). This law creates an expansive change in the

corporate governance in American corporations. More significantly, Bazerman et al. noted the

bias in the Accounting profession. They stated that

“Rooting out bias, or at least tempering its effects, will require more fundamental

changes to the way accounting firms and their clients operate. If we are really

going to restore trust in the U.S. system of auditing, we will have to go well

beyond the provisions of the Sarbanes-Oxley Act.” (Bazerman et al., 2002, p. 1).

If this is not enough stress for any profession, Miller and Pashkoff (2002) specifically discussed

the importance of the Public Company Accounting Oversight Board (PCAOB) to the accounting

profession. The new board was created through the enactment of the Sarbanes-Oxley Act in

2002. This board will have the oversight power to regulate and discipline (including fines)

companies that deviate or commit financial impropriety. Miller & Pashkoff (2002) stated that

49

“Sarbanes-Oxley establishes the Public Company Accounting Oversight Board (PCAOB) to

regulate accounting professionals who audit the financial statements of public companies. The

board’s operations are subject to direct and substantial SEC oversight” (para. 3). They broke

down the PCAOB membership structure in accordance with the law; the board will not be a

governmental agency and will not be funded by the tax payers. Its membership will be made of

“five full-time prominent individuals of integrity and reputation.” Two members must be or

must have been CPAs. The Securities and Exchange Commission (SEC), in consultation with the

chairman of the Board of Governors of the Federal Reserve System and the secretary of the U.S.

Department of the Treasury, is responsible for identifying the initial board members” (para.3).

Wegman’s (2007) focuses on the impact of SOX law on the accountants doing auditing

of public companies. The enactment of the Sarbanes-Oxley Act and the creation of PCAOB

have significantly increased the legal liabilities and risks for the auditing companies. Moreover,

SOX has also made the job of an auditor of a public company more strenuous and risky, because

of the requirements that the law has imposed on both the auditors (the auditing firms) and their

clients (the public companies). Prior to the enactment of SOX, the American Institute of

Certified Public Accountants (AICPA) was the umbrella body that regulates the accounting

profession, and they were the body that instituted the accounting practices that led to many of the

accounting frauds that transpired before and during the early 2000s. However, to stop such

practices from ever happening again, Congress created a new oversight board, the Public

Company Account Oversight Board (PCAOB). This board will regulate and enforce the

implementation of the SOX law. Wegman (2007) stated that PCAOB “represents the first time

the accounting profession has experienced direct external oversight by a government-sponsored

organization (Kleckner & Jackson, 2005)” (p. 8).

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The impact of the Congressional and implementation processes on the SOX Act

In order to get an accurate estimate of what it will cost for a public company to

implement and adhere to the SOX law, Mulherin (2007) explained the process involved.

According to Mulherin, part of assessing and getting a good estimation for a regulatory cost is to

analyze the prior capitalization (or value) of the company before the new regulation came into

effect, and then make an estimated calculation between the prior value and the new value

(factoring in the miscellaneous costs that transpired in-between), to arrive at a reasonable cost

estimate.

One major factor that is involved in the calculation of the cost is the processing time it

takes congress to pass a regulatory bill. Mulherin (2007) explained that “The event window of a

regulatory change from the initial development in a congressional sub-committee to actual

passage and implementation can encompass many months or even several years” (p. 424). As

noted, the time it takes to have a bill passed and signed into law and the time it takes to have all

the sections in the law become law, makes the cost calculation very difficult to quantify.

Mulherin (2007), however, stated that “Given the ambiguities in the dating of the markets

reaction to the Sarbanes–Oxley Act, it is not surprising that the studies do not produce consistent

results” (p. 429).

Alles, Kogan, and Vasarhelyi (2004) on the other hand, looked at the intent and

consequences of the law; a law that was supposed to help stop any further debacles like the ones

that happened at Enron, WorldCom and Tyco from ever happening again. However, the

questions that Alles et al. wanted to know is whether the implementation of the SOX law will

prevent future accounting frauds from ever happening again? Or, perhaps, maybe the law has

over stepped it boundary and gone too far with its internal controls requirement? Well, Alles et

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al. (2004) asserted that “Sarbanes/Oxley Act is not just a major piece of securities legislation; it

is also a prime example of the “law of unintended consequences”” (p. 1).

Section 404 of the Sarbanes-Oxley Act has created a sense of panic and apprehension

among the auditors (auditing firms) and the executive officers of public companies. Alles et al.

(2004) stated that “it is Section 404 that has captured the imagination of the accounting

profession, caused fear and loathing in corporate America and generates approximately 1.5

million hits (and counting) on Google. It is best described as the first new mandated audit

product since the passage of the original securities acts in the 1930s” (p. 4). Additionally, Alles

et al. also noted that

“One of the key concerns of the business community with 404 is the cost of

implementation, especially given the widely circulated story that at the time the

Sarbanes-Oxley Act was passed; the SEC assumed that compliance would take the

average firm only a few extra hours of work” (Alles et al., 2004, p. 5).

The Observation of the Sarbanes-Oxley Act on the Business Communities in America

Two thousand and seven marked the fifth year anniversary since Sarbanes-Oxley Act was

passed and signed into law; for that Wade (2007) looked at the progress (or lack thereof) of the

law in her article titled ‘Sarbanes-Oxley five years later: Will the criticism of SOX undermine its

benefits?’ This was the question that Wade posted in her article. She wondered whether the

law’s strict requirements, especially on how the public companies should manage and report

their internal control systems. Wade stated that “the Act’s strict requirements regarding financial

disclosure and accounting inspired a climate in which discussions about corporate ethics moved

from the periphery of corporate discourse to the center of corporate discourse (Langevoort,

2006)” (p. 595). However, five years after the enactment of the law, it seems as though some are

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still not comfortable with the requirement of the law. Perhaps a decrease in the cost of

implementing the law will change that perception, because Wade (2007) stated that “Compliance

costs should decrease because the new SEC guidance developed specifically for management

will allow each small business to exercise significant judgment in designing an evaluation

method that is tailored to its individual circumstances’ (p. 609). Wade (2007) then went on to say

that “Unlike external auditors, management in a smaller company tends to work with its internal

controls on a daily basis” (p. 609).

Catherine Shakespeare (2008) discussed what the business communities have learned

from the enactment and implementation of the Sarbanes-Oxley Act. In her quest to understand

what transpired and how the law has impacted the business communities in America,

Shakespeare (2008), broke down her research into several areas: economic impact of the passage

of the Act, internal controls, the impact on earnings and earnings quality, auditing and audit-

related issues, and corporate governance. However, from the onset, Shakespeare (2008) made it

known that even though her research may not be exhaustive; her review includes a broad

sampling of the major studies in each of the areas mentioned above.

Overall, Shakespeare (2008) believes that SOX has been a hugely significant piece of

legislation as can be seen from the broad range of research topics that she investigated. More

importantly, Shakespeare (2008) stated that the “Research on the economic impact of the Act

focuses on the market reaction to the passage of the Act, the going private or going dark

decisions of firms, and the choice of the location of new stock market listings” (p. 334). Overall,

though, the “results surrounding the market reactions to events surrounding the passage of the

Act have been mixed, most likely due to the difficulty of controlling other news events and the

choice of event dates” (p. 334). More importantly, Shakespeare (2008) went on to say that

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“There has been a spike in the numbers of firms going private and going dark. However, it is

difficult to disentangle the effects of SOX from other concurrent changes in the economy” (p.

334).

With regard to the impact of the SOX Act on the local non-for-profit organizations in

America, McNeal and Michelman (2006) discussed how the new law (SOX) would impact the

small nonprofit organizations which are mostly rural community and volunteer-based

organizations. They also discussed the potential for financial fraud with these community-base

organizations. McNeal & Michelman (2006) argues that “with small organizations suffering the

most extreme losses from fraud and embezzlements, small, community-based nonprofits must be

especially diligent in enacting fraud prevention and detection measures” (p. 60). They suggested

that in order to prevent any fraudulent activities and to mitigate against any negative financial

impacts on small nonprofit organizations, it is imperative that these small rural area community-

based organizations have “good board governance and internal control policies in these

organizations” (p. 60). As for the impact of the Sarbanes-Oxley on the small nonprofit

community based organizations, McNeal & Michelman (2006) noted that SOX “requires public

companies to establish an independent audit committee with the presence of at least one financial

expert” (p. 60). They went on to say that “For nonprofits that undertake external audits,

implementing this provision represents an opportunity to enhance the oversight function and

strengthen the benefits received from the independent audit” (p. 60)

Summation

This literature review has tried to give a clear picture of the research that is in the public

domain regarding the Sarbanes-Oxley regulatory Act. This review encompasses the issues and

concerns that many parties in the business communities have expressed for and against the law.

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Though the unscientific consensus is that the business communities are still overwhelmingly

against the law for variety of reasons; however, there are some who are proponents of the law

and they believe that the law is an important equilibrium that counter-balance the excessiveness

of some executive officers who are bents-on going overboard with their risky business

embellishments. This review looked at the Lara Bergen’s (2005) detail insight into the

implication of the Sarbanes-Oxley’s impact on public companies in the securities market.

Solomon and Bryan-Low (2004), however, believes that even when there is a case for reform,

some segment of the business communities will probably still have some issues with the

regulatory law. Edison on the other hand explores section 404 of Sarbanes-Oxley Act that

remains an extreme hot topic in the business and legal communities. Henry and Borrus (2003)

stressed that section 404 of the Sarbanes-Oxley Act was not the only area in the law that troubled

corporate America, however.

More importantly, what drew many of these authors to study the ramifications of the

Sarbanes-Oxley Act was its uncertainty. An author like Berenson (2005) who writes about the

effect of the law on corporate America partly did it because he wanted to understand the greed

associated with corporate governance and how it has impacted small family owned businesses.

Berenson discussed the corporate greed that has engulfed the American corporate system.

Wagner and Dittmar (2006), however, began their thought-process by explaining the

precipitating issues that led to the enactment of the Sarbanes-Oxley Act by Congress in 2002.

Lublin and Scannell illustrated how the cost factor has impacted many of the public companies

with the implementation of the SOX law. With regards to the matter of the sections in the law,

Bumgardner (2003) touched on the major sections of the law that the executives were concerned

about, i.e., section 404 of the SOX law. Gordon (2003) on the other hand, authored an article

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that discusses the corporate debacles that transpired in the early 2000s, especially the failure of

Enron – A giant energy company. To put it in a survey format, Broude and Prebil (2005)

presented a survey reports at the 2005 National Directors Institute in Chicago that showed how

private companies felt about the effect of SOX on their businesses. Aguilera et al. (2007)

explained how scholars of corporate governance see the world capital market systems as being a

two market systems; one being the Anglo-American and the second as the Continental

European/Japanese market systems. Cornelius and Kogut (2003), however, discussed how the

creation of a new corporate governance paradigm could strengthen the shareholder –

stakeholders system that exists in the Corporate America.

Finally, it is true that since the bill was passed and signed into law in 2002, many have

recognized that the small-sized companies disproportionately felt the burden of the

implementation of the law. Though, many speculated that the reason could be due to its

capitalization size, or perhaps because of its inability to absorb the financial impact as well as the

larger corporations. Regardless of what the reasons may been, the bottomline was that they are

now in a position of having to absorb hefty financial burden just so there won’t be another Enron

or WorldCom situations ever again. Switzer (2007), a well-respected scholar, investigated the

ramification of the SOX Law and its effects on small-sized businesses in America. He also co-

authored another interesting article with Tang (Switzer and Tang, 2009) that looked at the impact

of the SOX law on the corporate governance of small-cap businesses.

Conclusion

In conclusion, this literature review has shed important light on the ramification of the

Sarbanes-Oxley Act on businesses in America, especially the small-sized publicly traded

businesses. Even though the precipitating events that caused the enactment of the Sarbanes-

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Oxley Act was triggered by the collapse of Enron and the other corporations, Americans came to

see the devastating losses that impacted thousands of Enron workers who saw their pensions and

life-saving investments wiped out because of greed and selfishness of the risk-bound executive

officers of their company. It is difficult for the average American not to feel sympathy and

concerned for the people who lost their jobs and life-savings due to unfortunate circumstances

that were beyond their controls.

However, as bad and devastating as the loss was, America still has to be reasonable and

pragmatic in its due-diligent processes (regulatory laws). In as much as the Congress wanted to

help make the markets better, it has to be reasonable and prudent with the law it passes and

recognize that this particular law may have overstepped it bound and over burden the business

segment it does not want to infringed on, the small-sized businesses. Despite its noble cause,

Congress cannot overlook the fact that there is excessive burden that the Sarbanes-Oxley Act has

put on the shoulders of the small-sized businesses in America. Many researchers and surveys

have proven that the small-sized companies are disproportionately burdened by the requirement

of the SOX law (Broude and Prebil, 2005; Kamar, Karaca-Mandic, & Talley, 2007; Switzer,

2007; Switzer and Tang, 2009). It is without a doubt that there needs to be some kind of

oversight in the markets to monitor the unscrupulous CEOs who may want to venture into risky

business. However, small-sized businesses should not be overburdened by excessiveness of the

SOX law. More importantly, government need to always remember that small (and medium)

sized businesses are the engine of this nation’s economic growth and the number one creator of

the middle-class population in the country; hence they need to be given some latitudes.

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Literature Review on two additional federal regulatory Acts

As aforementioned, this chapter is also going to review some literature on two additional

federal regulatory Acts: The Dodd-Frank Act and the Affordable Care Act (also known as ACA).

Literature Review on the Dodd-Frank Act

The Dodd-Frank Act was a bill that was enacted by the U.S. Congress on January

5, 2010 and subsequently signed into law by President Barack Obama on July 21, 2010.

This Act was supposed to be a remedy (or a fix) to the financial crisis of 2008 caused by

the “too-big-to-fail” multi-national banks and financial institutions, through their

indiscipline financial practices (i.e., derivatives trading practices, indiscriminate

mortgage lending practices, and other financial instruments and practices that were

abused). As such, the country was in bad shape, financially and economically.

For the purpose of this thesis proposal, this literature review chapter will briefly review

some research literatures that were written on the subject-matter, the impact of Dodd-Frank Act

on small-sized community banks.

This review begins with the Marsh and Norman’s (2013) research paper on the impact of

the Dodd-Frank on small-sized community banks. They began by discussing the precipitating

causal that led to the enactment of the Dodd-Frank Act. They stated that “In the summer of

2008, the collapse of the American residential real estate market pushed the world’s economy off

a cliff, and all Americans felt the pain” (p. 3). They went on to say that “Unemployment rates

rose. Residential foreclosure rates skyrocketed. Corporate investment plummeted. The credit

markets seized. In the immediate aftermath, policymakers attempted to understand the causes of

the financial crisis and quickly “fix” the economy” (p. 3). As a consequence, Congress felt

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obliged and responsible to do something to fix the crisis. According to the sponsors (authors) of

the Act (Dodd-Frank Act), they highlighted the following as reasons why the Act was enacted:

“(a) the creation of the Financial Stability Oversight Council to monitor potential

threats to the financial system; (b) the provision of the orderly wind-down of

systemically significant banks and avoidance of a repeat of too big to fail; (c)

robust consumer protection reform through the creation of the Consumer

Financial Protection Bureau; (d) increased transparency for the over-the-counter

derivatives market, and (e) mortgage reform” (Marsh & Norman, 2013, p. 3).

Even though the Act’s intention was to create a transparent financial environment where

financial instruments, practices and services are not primarily in the hands of the big banks;

however, the burden created by the Act has led to the consolidation of smaller banks that cannot

function due to the restrictive regulatory requirements. Generally speaking, the effect of the Act

has been the opposite of what the Act was created to do. As such, Marsh & Norman (2013)

believed that “Because their banking activities are directed toward small businesses, farmers, and

consumers, community banks are considered “relationship” banks” (p. 11). They are relationally

base banks, because they know their local customers very intimately and they also provide

services that many big multi-national banks cannot or are not willing to provide. Their

relationship with their local customers makes them very desirable financial institutions that are

suited to revamp the local and regional economies. Marsh & Norman (2013) asserted that in

terms of financial services, small community banks provide roughly 48.1 percent of small-sized

business loans by US banks. Additionally, small community banks also provide “15.7 percent of

residential mortgage lending, 43.8 percent of farmland lending, 42.8 percent of farm lending, and

34.7 percent of commercial real estate loans, and they held 20 percent of all retail deposits at US

59

banks as of 2010” (p. 11). Marsh & Norman (2013) added that small community banks provide

essential financial services to “sectors of the American economy—particularly rural areas—that

would otherwise go underserved. Community banks operate in 1,200 US counties with no other

bank. Community banks are the only financial service providers available to more than one-third

of American counties” (p. 11).

As for the Act’s impact on small-sized community banks, Marsh & Norman (2013)

believes that Dodd-Frank impacts are two-fold. According to them, the first impact of Dodd-

Frank Act on community banks is the compliance cost that put them at a disadvantage to the

large multi-national banks. Additionally, Marsh & Norman (2013) asserted that “The number of

community banks will continue to shrink, through failure and merger, leading to increased

consolidation and continued growth of the too-big-to-fail banks” (p. 35). Secondly, Marsh &

Norman (2013) argued that the “influence of the Consumer Financial Protection Bureau and its

baseline assumption that increased standardization will benefit consumers, but will continue to

undermine the customization of the community banking model” (p. 35).

As for the compliance cost of the Act on small-sized community banks, Marsh &

Norman (2013) asserted that the financial and manpower cost would be too much burden on

small community banks compared to their larger counterparts. They stated that “Community

bankers have repeatedly expressed concern that Dodd-Frank will impose new and costly

regulatory compliance burdens on community banks” (p, 35). They went on to say that “Both

the GAO and FDIC, in reports released in September 2012 and December 2012, respectively,

concluded that it is impossible at this time to quantify the costs that community banks will incur

as a result of Dodd-Frank” (p. 35).

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In their conclusion, Marsh & Norman (2013) believes that the position that the small

community banks are placed makes it incredibly hard for them to function effectively and still be

a profitable business enterprise for their shareholders. As such, they stated that “If community

banks are forced to merge, consolidate, or go out of business as a result of Dodd-Frank, one

result will be an even greater concentration of assets on the books of the too big-to-fail banks”

(p. 39). They added that another issue that will materialize from the Act would be the impact on

individual customers and small businesses whose credit-worthiness does not align perfectly with

the standardized financial model (or have the right credit-worthiness) that the large multi-

national banks are looking for. These individuals and businesses would definitely find it very

difficult to obtain credit (and financial services) from any of these too-big-to fail multi-national

banks. Therefore, the Act would not be any good to the people (and community banks) it was

supposed to shield and protect. More importantly, it will not expedite the U.S economic recovery

In his testimonial paper to the U.S. House Committee on Oversight and Government

Reform Subcommittee on Economic Growth, Job Creation, and Regulatory Affairs on July 18,

2013; Professor Hester Peirce (2013) began by arguing that Dodd-Frank was the product of

desperation, on the part of Congress, to try and get a legislation enacted to avert the financial

crisis of 2008 from ever happening again. However, he believed that “Not only does Dodd-

Frank fail to effectively address the problems that precipitated the crisis, but it also imposes

costly burdens on many businesses that were not central causes of the crisis. Among these are

community banks” (p. 1). Even though small-sized community banks are not the main focus of

the Dodd-Frank Act, however, the detrimental impact of its requirements and restrictions are

having broad and consequential effects on small-sized community banks. Peirce (2013) argues

that the immediate and long-term effect of the regulatory Act encompasses every aspect of the

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banks’ day-to-day financial services. Consequently, one of the financial products (mortgage

loan) that the community banks used to engage in has now become too regulated and restrictive.

In addition to the new stringent mortgage rule, Peirce (2013) also added the following

component of the Act as burdensome to community banks: “the Consumer Financial Protection

Bureau (CFPB), capital requirements, the new municipal advisor registration regime, data

collection requirements, new conditions on the use of swaps for managing interest-rate risk, and

a deepening of the too-big-to-fail status of large financial institutions” (p. 1).

As a reminder, Peirce (2013) tried to give some historical background and usefulness of

community banks to the development of local and regional businesses. He believed because

community banks have served their local communities for decades and also because they are

prominent and important local financial resources to their local communities, they should be seen

as unique in the services that they provide their communities. As such, Peirce (2013) argued that

the uncertainty of the Act is “particularly pronounced because of the degree to which critical

decisions were left to the implementing regulators” (p. 4). He went on to say that even if the

“statute includes or regulators create exemptions specifically for small banks, banks may find

that determining how to comply with the conditions for exemption is a time consuming and—

because of the legal consequences of getting it wrong—stressful process” (p. 4).

Peirce (2013) concluded by saying that “It is difficult to understand with precision the

degree to which Dodd-Frank affects community banks and their potential to survive and thrive,

but it is clear that the regulatory burden is weighing heavily on small banks” (p. 7). According to

Peirce, he expressed the fact that some folks in the industry are arguing that the financial cost

and burden of implementing the regulatory requirements by small community banks can be

offset with subsidize. However, Peirce (2013) believes that the better “approach is to take steps

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to relieve the regulatory burden so that community bankers can make loans that will serve their

customers and earn profits for bank owners” (p. 7). In addition, he also stated that “Certain

problematic provisions of Dodd-Frank—such as the risk retention requirement—could simply be

eliminated. Others—such as the unaccountable structure of the CFPB—could be reformed” (p. 7)

In their working paper of 2014, Peirce, Robinson & Stratmann examined the devastating

impact of the Dodd-Frank Act on the operational-ability of small-sized community banks in the

country. Additionally, they were concerned about the ever growing impact of the regulatory Act

on the banking and financial industry, in general. More precisely, they were concerned about the

legislative document (Dodd-Frank Act) that grew from an 850 page-document into a 19,000 page

regulatory law (and no end in sight to its finality). Even though this 2010 Act was passed to help

make the financial industry more transparent, the Act has become a 19,000 page monstrous

regulatory Act. In their paper, Peirce et al. (2014) alluded to the fact that “Since the law’s

enactment, federal regulators have steadily issued subsequent rules to govern the practices of

U.S. financial institutions” (p. 1). They went on to argue that the Act that began as an 850 page-

document as now ballooned to a 19,000 page-document. Peirce et al. (2014) stated that “As of

mid-November 2013, its new rulemakings had created nearly 19,000 pages of regulatory text,

with approximately sixty percent of the rules still outstanding” (p. 1).

Though, the intent of the authors of the Act was to enact a law that would prevent the

financial catastrophes of 2008 from ever happening again, their intention was not to interfere

with the current operational-ability of the small-sized community banks, but to strengthen the

banking industry regulatory law against the unscrupulous behaviours of the “too big to fail” large

banking and financial corporations. According to Peirce et al. (2014, p. 7), proponents of the Act

believed that the law was meant to target the “Wall Street’s large financial institutions and their

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potential to cause downstream harm in the broader economy”. In their view, proponents of the

Act believed that the intent of the Dodd-Frank Act was to make sure that never again will the

recklessness of the large multi-national banking and financial corporations cause a crisis as far-

reaching as the 2008 financial depression (Peirce et al., 2014). However, even though the Act

was not meant to directly regulate the operational standard of small-sized community banks, the

effects are nonetheless very detrimental to the operational-ability of small-sized community

banks. Peirce et al. (2014) believed that despite the attempt of Dodd-Frank Act to “moderate its

effect on small banks, as regulators have filled in the details of the new regulatory regime there

has been a growing realization of the law’s profound effects on financial institutions of all sizes”

(p. 8). They went on to say that “Bankers, politicians, regulators, and commentators have noted

the potential harm that Dodd-Frank is causing small banks and the communities they serve. Most

of these concerns are based on an increasing body of compelling anecdotes rather than on broad-

based survey data” (p. 8).

As part of their findings, Peirce et al. (2014) stated that Dodd-Frank has “deeply affected

small banks. They are spending more time and money on compliance and, in some cases, are

shifting away from products, such as residential mortgage loans, for which the regulatory burden

appears to outweigh the benefits of continued involvement” (p. 8). They went on to also say that

the overwhelming sentiments among the community banks they surveyed were that the banks

felt as though the “regulatory-compliance burdens are becoming a growing obstacle to small

banks’ profitability and their ability to serve their communities” (p. 8). Additionally, Peirce et

al. (2014) argued that as a consequent of the financial and manpower burden that the regulatory

law demands, many of the small-sized community banks are now deciding to merge and create a

consolidated big bank. Peirce et al. asserted that since 1984 through 2011, over 2,500 banks

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failed. However, they argued that “These failures occurred mostly during the savings and loan

crisis and the most recent crisis. Another 12,500 banks were merged or consolidated. There

were an average of 346 mergers per year from 1985 to 2000, but only 182 mergers per year from

2000 to 2011” (p. 10).

Finally, Peirce et al. (2014) concluded that their initial analysis suggested that “Dodd-

Frank is having significant effects on small banks and their customers. A large majority of small

banks view Dodd-Frank as more burdensome than the Bank Secrecy Act, a regulatory regime

that banks widely regard as very burdensome” (p. 64). As a result even though the Dodd-Frank

Act created an exemption for the small-sized banks in the implementation of the law, the fact

still remains that the ever increasing regulatory burdens have led “small banks to reconsider their

product and service offerings. Based on the responses, we expect that the small bank share of the

residential mortgage business will shrink considerably” (Pierce et al., 2014, p. 64).

Subsequently, Pierce et al. (2014) argued that “These changes in product offerings will affect

small bank consumers, who may have difficulty locating convenient alternatives” (p. 64).

In his research article, Holtz-Eakin (2015) researched the general effect of Dodd-Frank

Act on small-sized community banks. He also looked at the regulatory bureaucracies that the

Act created to monitor the financial industry’s activities. Holtz-Eakin (2015) began by stating

the effects of the Act and how it has “created new agencies and bureaus, changed capital

requirements, revamped securitization rules, changed the oversight of derivatives, imposed the

Volcker Rule, and had provisions for corporate governance” (para. 1). He then went on to

explain how sweeping the reform Act will impact the financial markets. Holtz-Eakin (2015)

stated that

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“Dodd-Frank was a sweeping reform. It created new agencies and bureaus: the

Financial Stability Oversight Council (FSOC), the Office of Financial Research in

Treasury, the Consumer Financial Protection Bureau (CFPB), the Federal

Insurance Office in Treasury, an Office of Credit Ratings within the Securities

and Exchange Commission and others. It revamped securitization rules; changed

the oversight of derivatives; changed the prudential standards for risk-based

capital, leverage, liquidity, and contingent capital; imposed the Volcker Rule, had

provisions for corporate governance, and more. And, in the process of being

implemented, it required 398 separate rulemakings that are still not complete

nearly five years later” (para. 3)

As a result of the regulatory burdens on the banks, Holtz-Eakin (2015) believed Dodd-

Frank Act has created “uncertainty that has harmed lending. It is even more likely that the

banking sectors response to these requirements and the burden of regulatory compliance have

been an effective tax on the banking sector that has harmed lending, investment and growth”

(para. 4). Subsequently, Holtz-Eakin (2015) predicted that growth was going to be significantly

impacted. He stated that growth consequence would be “$895 billion in reduced Gross Domestic

Product (GDP) or $3,346 per working-age person over the next 10 years. Clearly, such a

computation is subject to large uncertainties, but the order of magnitude is instructive” (p. 6).

In their working paper, Lux and Greene (2015) began by trying to find the appropriate

definition for a community bank, because none of the federal agencies could give appropriate

definition (i.e., the Office of the Comptroller of the Currency (OCC), the FDIC, and the Federal

Reserve Board have different criteria and definition for small-sized community banks).

However, the general agreeable term vis-à-vis the classification of community banks was “banks

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with less than $10 billion in assets.” With this definition and classification of what constitute a

community bank asset-wise, Lux & Greene (2015) discussed the historical background of the

“state and fate” of small-sized community banks in the financial markets. They argued that even

though community banks are the preferred financial lending institutions for small businesses,

residential mortgages, and agricultural loans, their presence have been diminishing for decades.

Lux & Greene (2015) stated that “Our assessment of Federal Deposit Insurance Corporation data

finds that community banks service a disproportionately large amount of key segments of the

U.S. commercial bank lending market – specifically, agricultural, residential mortgage, and small

business loans” (p. 1). However, they added that “community banks’ share of U.S. banking

assets and lending markets has fallen from over 40 percent in 1994 to around 20 percent today”

(p. 1). Interestingly, Lux & Greene (2015), found that community banks came out of the

financial crisis with a market-share 6 percent lower after the 2008 crisis, however, since the

“second quarter of 2010 – around the time of the passage of the Dodd-Frank Act – their share of

U.S. commercial banking assets has declined at a rate almost double that between the second

quarters of 2006 and 2010” (p. 1).

As a way out of this financial quagmire that small-sized community banks find

themselves in, Lux & Greene (2015) discussed series of recommendations that, they believed,

could help turn things around for the small community banks. One of many things that they

noted and stated was the overwhelming regulatory burdens that many community banks face in

the operation of their businesses. They stated that “one of the most significant problems

community banks face is the sheer volume of banking regulations and the seeming lack of

coordination” (p. 27). According to Lux & Greene (2015), they gave one estimated report that

believed that Dodd-Frank would increase U.S. total financial regulatory restrictions to 32 percent

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relative to 2010 restrictive levels once all the rulemaking requirements are completed. However,

Lux & Greene (2015) added that “The legal costs for community banks associated with more

regulations are inherently a larger portion of overall revenue than for larger institutions, making

any form of compliance more difficult” (p. 27).

Finally, Lux & Greene (2015) concluded by saying that the prominent role that

community banks have played in the financial stability of many businesses in the U.S. economy

should be maintained and strengthened. More importantly, they are known as relational banks,

and they build their business practices and reputations on their ability to be the bank of last result

for their local businesses and communities. This is a very unique position that they (small

community banks) hold as a financial institutions. Lux & Greene (2015) stated that “Our

research suggests that community banks continue to play a uniquely important role in U.S.

agricultural, residential and small business lending markets” (p. 31). Additionally, they noted

that “Consolidation is not inherently a bad trend, but policymakers should be concerned that a

critical component of the U.S. banking sector may be withering for the wrong reasons –

inappropriately designed regulation and inadequate regulatory coordination” (P. 31).

Literature Review on the Affordable Care Act (Also known as ACA or ObamaCare)

The Affordable Care Act (also known as ObamaCare) was a bill that was enacted by the

U.S. Congress and subsequently signed into law by President Barack Obama in 2010. The

enactment of this Act was supposed to remedy the ever-increasing health-care cost that has

consumed the nationals’ Gross Domestic Product (GDP). Additionally, this Act was also

supposed to help low-income Americans who have been without medical insurance due to the

fact that they could not afford it, and those who have been denied medical coverage (insurance)

because of their pre-existing medical conditions. Affordable Care Act (ACA) refers to two

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separate legislations that were enacted and signed into law by President Barack Obama in 2010.

This Act represented the Patient Protection and Affordable Care Act (P.L. 111-148) and the

Health-Care and Education Reconciliation Act (P.L. 111-152). These regulatory Acts were

meant to expand Medicaid coverage for millions of Americans who couldn’t get or afford

medical insurance coverage. But, more importantly, this Act was known to be the corner stone

of the presidency of President Obama; hence the nickname ‘ObamaCare’.

Even though the intent behind the Act was admirable and commendable, the economical

effect went deeper than anyone ever expected and imagined. The fact is that almost every

segment of the economy is feeling the impact of the ACA regulatory requirements. The

businesses that are impacted the hardest are the small-sized businesses that employ between 50 –

99 workers, because they have to comply with the employer mandated requirement of the Act.

This requirement mandated that these employers provide health-care coverage for all of their full

time employees. This section of the literature review will briefly discuss some of the

deficiencies of ACA vis-à-vis its impact on small-sized businesses.

In their research article, O’Neill and Ryan (2015) looked at the Affordable Care Act

impact five years after it was signed into law by President Obama. They discussed the effect of

the Affordable Care Act, and how it has changed the landscape of the American health-care

system. O’Neill & Ryan (2015) stated that “The primary objectives of the ACA were to expand

insurance coverage while reducing the cost of insurance and to rein in the increasing cost of

health care” (p. 1). However, the Act did not begin on a positive note, because the first year into

the new health-care system, the enrollment debacle almost derailed the process. Nevertheless, at

the end of the enrollment period, the CBO (Congressional Budget Office) numbers that were

originally projected for the ACA to be successful were exceeded. O’Neill & Ryan (2015) gave

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the following statistical enrollees numbers for the 2014 enrollment; they stated that “In 2014, the

first year the ACA’s health insurance exchanges were operating, 8.02 million individuals

enrolled in a marketplace exchange plan. According to HHS, 2.57 million enrolled through a

state exchange and 5.45 million enrolled through the federal exchange” (p. 6-7). They also

added that “Even though the initial open enrollment period was 6 months long (October 1, 2013,

to March 31, 2014), 47 percent did not enroll until the last month or during the Special

Enrollment Period (which extended the deadline to April 19 in response to lower-than-expected

enrollment)” (p. 7).

In 2015, there was a slight increase in the enrollment numbers that were reported; this

increase was in line with the CBO projected numbers. O’Neill & Ryan (2015) stated that “In

2015, enrollment through the exchanges has increased to 11.69 million individuals as of

February 15 (though enrollment is still ongoing since the deadline was extended to April 30)” (p.

7). They added that “According to HHS and consistent with the CBO March 2015 estimate, 2.85

million enrolled through a state exchange and 8.84 million enrolled through the federal

exchange” (p. 7). However, the ‘individual cost’ of health-care coverage make many individuals

wondered how the new exchange system would affect them financially. As a cautionary note,

O’Neill & Ryan (2015) argued that even though, on average, the exchange insurance premium of

2014 were slightly lower than the employer-sponsored insurance premium, they did not see a

huge difference in the average subsidies provided by the exchange plan, which was 76 percent of

the cost of the premium, compared to the employer-sponsored coverage premium which was 82

percent. In their cost curve, they alluded to the fact that health-related cost has bitten into the

nation’s GDP and individual wallets. However, they were not convinced that the new exchange

system had succeeded in remedying the ever-increasing health-care cost.

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As reference to the increase cost of health-care in America, O’Neill & Ryan (2015)

referred to the latest Health-care Sector Trend Report by the Altarum Institute that showed a 5.2

percent increase in the health-care expenditure between 2013 and 2014. However, O’Neill &

Ryan (2015) added that the health-care growth in the last quarter of 2014 was at 6.2 percent

compared to the same quarter of 2013. More alarming was the fact that the number went even

higher to 6.6 percent in February of this year, an indication that the growth might end up going

higher by the end of 2015. According to O’Neill & Ryan (2015), they asserted that “The

conversation surrounding health care expenditures has been particularly interesting recently

because of the occurrence of two simultaneous events, both of which may have had a large

impact on health care spending: health care reform, of course, and the “Great Recession”” (p.

11). They added that the trajectory of health-care growth initially shows some deceasing (from

6.3 percent in 2007 to 3.8 percent in 2008); in addition, for the past five years, the growth has

stayed around 4 percent. However, O’Neill & Ryan (2015) added that the slow increase in

health-care expenditure dropped to 4.8 percent in 2008 corresponded “strongly with the recent

recession than it does with passage of the ACA. The legislation, of course, was not signed into

law until 2010, the third year of the slowdown” (p. 11).

In conclusion, O’Neill & Ryan (2015) believed that “Five years after passage, there are

few clear indications that the ACA has had its intended impact on cost of care and access to it.

Meanwhile, the law costs significantly more than projected” (p. 14). They added that “We are

unsure how many previously uninsured people have truly gained coverage because of the law.

For many who have gained insurance coverage, they have not, in turn, been successful at gaining

access to affordable care…” (p. 14).

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In their research paper, Batkins, Gitis & Ryan (2014) discussed the impact of ObamaCare

on small-sized business wages and employment. They began by looking at how Affordable Care

Act impacted the small-sized businesses through its regulation and the ever-increasing health-

care premium. They stated that their research showed that Affordable Care Act (ACA)

restrictive regulations were “reducing small business (20 to 99 workers) pay by at least $22.6

billion annually. In addition, ACA regulations and rising premiums have reduced employment by

more than 350,000 jobs nationwide, with five states losing more than 20,000 jobs” (p. 1). They

added that even though there were no correlated evidence to show that health-care premium prior

to the ACA exchange system cost decrease in job creations, however, since 2010 small-sized

businesses had gradually shed jobs and, in the process, reduced their employees’ wages.

According to Batkins, Gitis & Ryan (2014), they stated that they “found that, on average,

employees who work a full year for a business with 50-99 employees lose $935 annually due to

ACA regulations, while employees of businesses with 20-49 employees, on average lose $827.50

annually” (p. 1).

As a consequence of the regulatory burden of the Affordable Care Act, employment

opportunities and wage growths have been depressed. Batkins et al. (2014) argued that since the

implementation of ACA, employers with full time employees of 50 or more are now required to

provide those employees with health-care insurance or end up paying a fine. In addition to the

burden of providing health-care insurance to their full time employees, Batkins et al. (2014)

added that “ACA enforces rules that govern the type of insurance plans they can provide and

restricts their options in choosing low-cost coverage” (p. 1). As such, they asserted that the

problem with understanding the true impact of the restrictive impact of ACA on businesses

would not be known for awhile, due to the fact that most of the stringent and significant rules

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only just starting to be implemented. Batkins et al. (2014) stated that “For instance, the

employer mandate was scheduled for January 1, 2014, but the White House delayed the mandate

to January 1, 2015, and then delayed it again to January 1, 2016 for businesses with 50 to 99

employees” (p. 1).

As for the impact of ACA on jobs, Batkins et al. (2014) believed that, in their research

sample, a one percent post-ACA health-care premium increase for a small-sized business with 20

– 49 employees’ means 0.093 percent decrease in jobs. However, they argued that pre-ACA,

there were no noticeable concerns expressed by small businesses. They stated that “A one

percent, post-ACA increase in employer health insurance contributions is correlated with a 0.055

percent decrease in jobs, whereas prior to the ACA, a one percent increase in employer

contributions was correlated with a 0.074 percent increase in jobs” (p. 4). They also added that

“Pre-ACA, a one percent increase in employee health insurance contributions is correlated with a

0.047 percent decrease in jobs and has not substantially changed with the passage of the ACA”

(p. 4). As for ACA impact on weekly pay, Batkins et al. (2014) research showed that a post-

ACA one percent increases on the health-care premium on small-sized businesses with 20 – 49

employees’ means 0.031 percent decrease in wages. However, it was the opposite pre-ACA

when it was a 0.077 percent in wage increases. Similarly, they added that “a one percent

increase in employer health insurance contributions is associated with a 0.028 percent decrease

in wages post-ACA and a 0.068 percent increase pre-ACA” (p. 5).

More importantly, Batkins et al. (2014) emphasized the fact that unlike their job-level

findings, they reported that post-ACA showed a strong correlation between health-care

premiums and wages for full time employees (businesses with 50 - 99 employees). They stated

that “A one percent increase in total insurance premiums post-ACA is associated with a 0.109

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percent decrease in wages, and a one percent increase in employer health insurance contributions

post-ACA is associated with a 0.085 percent decrease in wages” (p. 5). As such, Batkins et al.

(2014) argued that “if the ACA had never become law, the 19.8 percent increase in total

premiums since 2009 would have been associated with a 1.5 percent increase in weekly pay” (p.

7). Consequently, Batkins et al. (2014) believed that “ACA regulations are costing workers in

businesses with 20 to 99 workers at least $22.6 billion annually” (p. 8).

Finally, Batkins, Gitis & Ryan (2014) concluded that Affordable Care Act has changed

the “health care landscape, affecting premiums, small business wages, and employment. $22.6

billion in foregone income and 350,000 lost small business jobs might sound like stark numbers,

but they are just the initial data from the ACA’s implementation” (p. 10). Batkins, Gitis & Ryan

(2014) added that they “expect this trend to strengthen as the administration fully implements the

employer mandate” (p. 10).

Alyene Senger (2013) discussed the impact of ObamaCare on businesses. She claimed

that “Obamacare will impose new health coverage costs, the employer mandate, compliance

regulations, and new taxes on all businesses” (p. 1). According to Senger, “these constraints will

dramatically affect companies’ per-employee costs, desire to provide health coverage, and

motivation to grow in terms of both income and employment” (p. 1). As such, Affordable Care

Act will likely exacerbate the concerns that many businesses have vis-à-vis the regulatory costs

and the burden of implementing the restrictive regulation.

To better explain how the ACA will impact small-sized businesses, Senger articulated

four pointers. First, Senger expressed that “Obamacare does nothing to reduce the continually

increasing costs facing businesses that provide health insurance coverage. In fact, Obamacare’s

wide variety of benefit and coverage mandates—combined with new taxes, fees, and penalties—

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will increase the cost of providing coverage” (p. 1). Actually, according to Senger (2013), the

increases that the Act would cost on small-sized businesses with fewer than 50 employees would

force them to drop coverage for employees that they currently cover. Second point that Senger

articulated was the mandate that forces employers with 50 or more full time employees to

provide compulsory health-care insurance for those employees or face a penalty of $2000 per un-

insured employee (from the 31st employee) or $3,000 for employee who receive premium

subsidy from the exchange system. According to Senger (2013), “This creates an incentive for

businesses to avoid both the penalty and cost of coverage by hiring part-time employees instead

of full-time employees, since businesses will not be penalized for failing to provide health

insurance to part-time employees” (p. 1). The third pointer, according to Senger (2013), was the

high compliance cost that the ACA was going to impose on small-sized businesses. She stated

that “Small businesses do not have the capacity to easily take on additional administrative

complexities. Many small companies will have to hire additional workers—and incur higher

external accounting expenses—to handle the enhanced compliance regulations on health

insurance plans” (p. 1-2).

According to Senger (2013), the reason why the Act (Affordable Care Act) would harm

small businesses was because “Obamacare increases the Medicare payroll tax by 0.9 percent and

establishes a new 3.8 percent Medicare surtax on unearned (investment) income such as capital

gains and dividends for high-income earners” (p. 2). She added that “The increased payroll tax,

in addition to wage and salary income, applies to “flow-through” business income earned by

small businesses” (p. 2). This was a major burden that would impact small businesses’ ability to

create jobs and subsequently affecting their profitability. Senger (2013, p. 2) believed that small

businesses are the nation’s job creators, “and higher taxes on them will slow job creation.”

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Moreover, she added, “the wage thresholds on this tax increase are not indexed to inflation and,

consequently, will push more small-business owners into this higher tax group as time goes on.”

As a result of these burdens on small-sized businesses, Senger (2013) concluded that

Obamacare was bad for business; she stated that “Obamacare saddles businesses with more

burdens than benefits. Not only do Obamacare’s policies fail to help small businesses in the way

intended, but the unintended consequences of its mandates and regulations are even worse” (p.

3). She added that “As Obamacare’s full implementation nears; its increased costs and com-

plexities are likely to significantly hinder business growth and success” (p. 3).

Devon Herrick (2014) researched the effect of the Affordable Care Act on small-sized

businesses; he began by looking at the difference between the ability of large businesses to self-

manage their own health-care plan and their smaller counterparts who have to join an existing

health-care plan run by health-care insurance companies. Herrick (2014) believed that “Whereas

large corporations typically self-insure - paying their employees’ medical bills and hiring

insurers to administer health benefits - small businesses purchase group health coverage from

insurers and face cost-increasing regulations as they go through the annual ritual of renewing

their coverage” (p. 1). Herrick also alluded to the misplacement of focus by the media outlets on

the new ACA health-care mandates; in his estimation, he believed that even though the attention

of the media outlets had been to focus on the “federal and state health exchanges, much of the

burden of complying with the Affordable Care Act will fall on business. Nearly two-thirds of

Americans with health coverage have employer-sponsored health insurance - approximately 171

million people” (p. 1).

Written into the ACA regulatory requirements was the employer mandate which required

employers with 50 and more full time employees to provide comprehensive medical coverage for

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those employees. Herrick (2014) argued that the inclusion of the employer mandate in the ACA

requirements made the issue very problematic, hence the delay in implementing the specific

requirement. Herrick believed that adding the employer mandate in the ACA requirement was to

force employers (with 50 and more full time employees) to provide those employees with full

health-care coverage. However, enforcing and administering the mandate is problematic; hence

the reason the federal government had to delay the implementation. He stated that “Enforcement

of the mandate has been delayed until 2015 for employers with more than 99 full-time

employees. Firms employing from 50 to 99 full-time workers have until 2016 to comply.

Businesses with fewer than 50 employees will not be penalized” (p. 1). However, Herrick

(2014) added that “Employers are also required to limit the amount of premiums some

employees pay as a percentage of their wage income” (p. 1). Even though this specific mandate

does not apply to smaller businesses with up till 49 employees, the Act makes it almost

impossible for these employers to hire new employees, because they do not want to get to that

fiftieth employee that requires them to provide health-care coverage for almost half of their work

force. As far as they are concerned, the fiftieth employee can be a very expensive one to hire.

As a way to help reduce the employer mandate burden that ACA levied on businesses,

Herrick (2014) stated that

“Employers have three ways to reduce the burden of the employer mandate: 1)

limit the workforce to fewer than 50 workers; 2) limit the hours worked per week

by some employees to fewer than 30 hours; or 3) fail to offer coverage and, thus,

pay a $2,000 per (full-time) worker fine. These perverse economic incentives will

cause many firms to avoid growing beyond 49 employees” (Herrick, 2014, p. 5).

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As for smaller businesses, one good thing that have been mentioned that was included in the

ACA regulation was the creation of small business subsidy that was supposed to help firms with

less than 26 employees. This tax credit was set up to help cushion any financial burden that

smaller employers with fewer than 26 employees might incurred. Herrick (2014) stated that

Affordable Care Act included a “temporary health insurance tax credit for small employers with

moderately-paid workers. The credit is only available for six years, and the only firms that

qualify are those with 25 or fewer employees and whose average wage is less than $50,000” (p.

4). Additionally, Herrick believed that “Most businesses will not meet the strict (and complex)

criteria for claiming the credit. In fact, fewer than one-third of small businesses qualify,

according to the National Federation of Independent Business” (p. 4).

As part of the impact of Affordable Care Act on businesses, the law indirectly reduces the

number of work-force in many businesses and also causes delays in new hires. Herrick (2014)

gave an example of the research survey conducted by the Society of Human Resource

Management. He stated that the survey of more than 600 small-sized business owners “found

that more than four-in-10 small business owners have delayed hiring due to uncertainty about the

effects of the ACA. One in five reported they have cut the number of workers they employ” (p.

9). Additionally, the Society for Human Resource also found in their survey that one in every

five small businesses are “reducing workers’ hours to part time because they are not required to

offer coverage for employees who work less than 30 hours per week. Those employees will be

eligible for subsidized coverage in a new health insurance exchange” (p. 9).

In his final analysis, Herrick (2014) concluded that Affordable Care Act “contains

sweeping changes to the employer-sponsored health insurance market. Though it was promoted

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as a way to lessen the problems small businesses experience in providing health coverage, many

business owners report that the law is increasing their burden” (p. 9).

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Chapter 3: Methodology

Methodology

This research study sought to examine the impact of the Sarbanes-Oxley Act (also known

as SOX) on small-sized publicly traded businesses and the communities they operate in through

the utilization of the qualitative methodology. According to Creswell (2013), he asserted that

qualitative research has the exploratory capacity to investigate problematic issues in any research

study. As such, he stated that “We conduct qualitative research because a problem or issue needs

to be explored,” thus it is the appropriate methodology to use in getting to the root-causes of any

phenomenon (Creswell, 2013, p. 47). Therefore, this study will utilize the incredible

interpersonal leverage that qualitative method affords researchers to examine the “lived

experiences” of the research participants and think through the impact that the Sarbanes-Oxley

Act has had on the “lived experiences” of the small-sized publicly traded companies and the

communities they operate in (see figure# 2 - the critical construct of this thesis research study).

Figure# 2: presents some the critical construct of this thesis document

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Research primary questions

Question #1: How do current or former officers of small-sized publicly traded companies

describe their experiences of the Sarbanes-Oxley Act on their businesses?

Question #2: How do current or former officers of small-sized publicly traded companies

perceive the impact of the SOX Act on the communities they operate in?

Research Tradition/Design:

This research study has elected to utilize the Interpretive Phenomenological Approach

(IPA). This qualitative research approach will help to examine the “lived experiences” of the

participants in the study. According to Smith, Flowers & Larkin (2009), they asserted that IPA

research approach has the ability to explore, in a deep way, the “lived experience” of a

participant and help to understand the phenomenological significance of this experience and how

it impact the participant. As an interpretative qualitative approach, IPA is able to interpret the

commonality in the participants’ “lived experiences”. Smith et al. (2009) argued that “What they

[the experience or phenomena] all have in common is that they are of major significance to the

person, who will then engage in a considerable amount of reflecting, thinking and feeling as they

work through what it means” (p. 3). As such, “When people are engaged with ‘an experience’ of

something major in their lives, they begin to reflect on the significance of what is happening and

IPA research aims to engage with these reflections” (p. 3). Hence the reason Smith et al. (2009)

believed that “IPA shares the views that human beings are sense-making creatures, and therefore

the accounts which participants provide will reflect their attempts to make sense of their

experience” (p. 4). For these reasons, this research study has elected to utilize the interpretive

phenomenological approach (IPA), a research tradition that is uniquely positioned to investigate

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and interpret the impact of the Sarbanes-Oxley Act on the small-sized publicly traded companies

and their local communities through the lens of their “lived experiences”.

Participants:

This research study will select its participants from amongst small-sized publicly traded

companies in multiple industries across the country. The reason why participants are selected

from multiple industries is for this study to truly understand the impact of the SOX Act on

management of small-sized publicly traded companies all across the country. Smith et al. (2009)

stated that “samples are selected purposively (rather than through probability methods) because

they can offer a research project insight into a particular experience” (p. 48). As such, because

of what this selected participants will bring to the research table, this study anticipates that the

homogeneity (the size of the participating companies, i.e., small-sized companies) and the

number of participants in the study will afford the research greater access to rich and ‘thick

descriptive’ perspective of the participants’ “lived experiences”. Smith et al. (2009) also

explained that “IPA researchers usually try to find homogenous sample, for whom the research

question will be meaningful [and enriching]” (p. 49). However, it is also very important that just

because the participants are homogeneous in size and “lived experiences”, it does not mean they

are to be treated as though they have similar experiences. Smith et al. (2009) put it more

assertively; they stated that it is “important that this purposive homogeneous sampling is not seen

as treating the members of the sample as an identikit [but as individual’s who has lived and

experienced similar phenomena and nuances]” (p. 49).

As aforementioned, this research study will select two participants from small-sized

publicly traded companies for this research study. The demographics of these two participants

will be similar in market niches and management styles. The process of selecting the two

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participants will be based on sending out letters of invitation to multiple small-sized publicly

traded companies with market capitalization that does not exceed $1 billion. In addition to that,

if for any reason the number of participants is not reached, a snowball strategy will be introduced

to help attract more participants. This snowball strategy will be based on soliciting the advice

and help of the participants who have already agreed to participate in the research project to help

‘put in a good word’ to attract other companies to join in the research project.

This research study anticipates selecting two participants for this project, because the

essence of an IPA research project is to get a ‘rich’ and ‘thick detailed description’ of the “lived

experiences” of the participants. As such, this study will try and adhere to Smith et al. (2009)

suggestion that stated that “between three and six participants can be a reasonable sample size

for a student project using IPA; [however, for this research study, a minimum of two participants

has been deemed sufficient]. ” (p. 51). In addition to that, Smith et al. (2009) also reiterated that

the “primary concern of IPA is with a detailed account of individual experience. The issue is

quality, not quantity, and given the complexity of most human phenomena, IPA studies usually

benefit from a concentrated focus on a small number of cases” (p. 51).

More importantly, the reason for selecting two small-sized publicly traded companies

(participants) is to truly understand the impact of the Sarbanes-Oxley Act not just on the small-

sized companies, but also to examine and understand any possible impact that the Act might

have had on the local communities that these small-sized companies operate in. The selection

process is to invite two small-sized publicly traded companies that has up to (but not over) $1

Billion in market capitalization each.

Market capitalization is defined by Investopedia, an internet investment educational site,

as the “total dollar market value of all of a company's outstanding shares. Market capitalization

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is calculated by multiplying a company's shares outstanding by the current market price of one

share. The investment community uses this figure to determine a company's size, as opposed to

sales or total asset figures.” (http://www.investopedia.com/terms/m/marketcapitalization.asp).

As such, Investopedia referred to small-sized publicly traded companies’ market capitalization as

“stocks with a relatively small market capitalization. The definition of small cap can vary among

brokerages, but generally it is a company with a market capitalization of between $300 million

and $2 billion” (http://www.investopedia.com/terms/s/small-cap.asp).

Recruitment and accessibility:

As stated above, this research study will invite two small-sized publicly traded companies

through letters of invitation. However, for any unforeseen reason the research study could not

get to its targeted participants’ number, this study will introduce a second strategic option to get

more participants. The second option is through the utilization of a snowball strategy. This

study will solicit the help of any participant who has already committed himself/herself to the

research project. Additionally, as a qualitative research study, it is important that this study

have adequate access to its participants (and research sites) as conveniently and as often as

possible. Creswell (2013) stated that in a qualitative research study, “one needs to find one or

more individuals to study, individuals who are accessible, willing to provide information, and

distinctive for their accomplishments and ordinariness or who shed light on a specific

phenomenon or issue being explored” (p. 147). As such this research will endeavor to gain

access to the participants by articulating the importance and beneficiary aspects of this study to

the individual participant in particular, but more so the general economic stability of the country.

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Data collection:

As for attracting ‘rich’ and ‘thick descriptive’ research data, qualitative research is known

for its interactive and interpersonal data gathering methodology; a methodology that allows for

natural conversational dialogue to take place between the researcher and the participants. Smith

et al. (2009) put it more eloquently; they stated that “A qualitative research interview is often

described as ‘a conversation with a purpose’. This purpose is informed, implicitly at least, by a

research question” (p. 57). The ‘conversation’ in an IPA interview, according to Smith et al.

(2009), is “rather artificial; the aim of an interview is largely to facilitate an interaction which

permits participants to tell their own stories, in their own words” (p. 57). Creswell (2013) stated

that “For a phenomenological study, the process of collecting information involves primary in-

depth interviews with as many as 10 individuals. The important point is to describe the meaning

of the phenomenon for a small number of individuals who have experienced it” (p. 161).

Therefore, as an IPA research, this study will utilize the semi-structured one-to-one interview

procedure as the method of conducting the interviews. These interviews will be conducted by

the researcher, and the length of the interview will be approximately ninety minutes long. As for

the location of the interviews, the researcher will endeavor to find a convenient, but safe place

for the interview to take place.

Though data gathering can be tedious, Smith et al. (2009) argued that the aim of a

qualitative research in general, and IPA in particular, is to design a data collection methodology

that allows for rich and detailed “lived experience” stories of the participants to be gathered in a

semi-structured one-to-one interview format. This format will allow for both researcher and

participant to develop a relationship that probably would not have been possible under any other

circumstances. Additionally, Smith et al. (2009) asserted that “Interviewing allows the

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researcher and participant to engage in a dialogue whereby initial questions are modified in the

light of participants’ responses, and the investigator is able to enquire after any other interesting

areas which arise” (p. 57).

Data Storage and Management:

As an added protection, this research study will destroy through the deletion of any video,

audio and/or taped recorded information after it has been transcribed for the safety and protection

of the participants. Additionally, this study will also provide a safe and sturdy storage system for

the safekeeping and management of the research data. Rubin & Rubin (2012) advised that

researchers should have a sturdy safety system that protects the data collected from the hands of

any outsider, i.e., providing a protected password system for the filing and storing of research

data. Additionally, researchers are advised to invest in a physically locked cabinet (with keys) so

that it can be used as a secured storage space for data safekeeping. This secured storage cabinet

will be used to ‘safe-keep’ the transcribed research data (i.e., the original hard copies) and any

other important and confidential data and electronic devices.

As the manager of the research study and storage system, the researcher will be the only

person with access to the research storage system. The storage management of the research data

will be coordinated and managed by the researcher utilizing a color-coding system. Additional

resource such as a secured personal computer system with secured back-up software will be

utilized to compliment the traditional physical cabinet storage system for added storage space.

As aforementioned, in addition to destroying through deletion of every audio and/or video

recording after the interviews have been transcribed, this research study will also adhere to the

NU-IRB requirement on the discardment of the signed consent forms three years after the

completion of the research study (if utilized). The NU-HSRP website (Retention Period for

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Signed Informed Consent Documents) stated that “Federal regulations overseeing human subject

research require that signed consent forms be retained for at least 3 years after the completion

of the research (45 CFR 46.115(b)). Once the retention requirement has been met, signed

informed consent documents should be securely destroyed by shredding.”

Data Analysis:

As a qualitative research study, it is important to accurately capture the participants’

answers to the interview questions. For this reason, this research study as elected to utilize the

interpretive phenomenological analysis (IPA) over the other capable analytical qualitative

approaches because of its analytical flexibility and ability to focus on each participant’s “lived

experience” stories. Smith et al. (2009) put it more concisely by saying that “As with many

other approaches in qualitative psychology, the essence of IPA lies in its analytic focus. In IPA’s

case, the focus directs our analytic attention towards our participants’ attempts to make sense of

their experiences” (p. 79). Therefore, all responses to the research interview questions by the

participants will be audio recorded (with the permission of the participants) to capture the “lived

experience” stories as described and narrated by the participants. The audio recorded interviews

shall then be transcribed verbatim into a hard copy. The transcribed interviews will be coded

and categorized for common/emergent themes. Miles, Huberman, & Saldana (2013) stated that

“Credible and trustworthy analysis requires, and is driven by display that are focused enough to

permit a viewing of a full data set in the same location and are arranged systematically to answer

the research questions at hand” (p. 108). Wu & Wu (2011, p. 1305) asserted that “Qualitative

research focuses on context analysis, explores the deeply-rooted causes of phenomena, and

highlights the explanations of what happened.” More importantly, in an IPA analytical process,

Smith, Flowers & Larkin (2009) argued that “There is no clear right or wrong way of conducting

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this sort of analysis, and we courage IPA researchers to be innovative in the ways that they

approach it [the data analysis]” (p. 80). As a self-imposed requirement, every analytical works

undertaken by this research study shall be rigorous and thorough in order to produce a quality,

credible, and transferable research findings.

Data coding process

As a coding procedure, the first thing the researcher will do before any analysis is to read

the interview questions and responses, at least, three times to get a better understanding for what

the participants were expressing. Therefore, as a strategy, the researcher plan to capture the

essence (meaning) of the participants’ “lived experiences” by listening to both the spoken and

unspoken words in the participants’ responses. According to Graneheim & Lundman (2003),

this is what they referred to as the ‘meaning unit.’ The ‘meaning unit’ is the “constellation of

words or statements that relate to the same central meaning” (Graneheim & Lundman, 2003, p.

106). This is also known as the coding unit. After the initial reading of the transcripts and other

data, the researcher will initiate the coding by utilizing the “first generic cycle coding strategy”

to get a feel for what the participants (interviewees) were saying. This researcher will code the

transcripts into a chunky format; this means that this research study will group each response by

the participant together to develop a code per response. This format allows this research study to

condense the responses into a manageable and code-able format. This process is what Strauss

and Corbin (1990) referred to as an open coding strategy. According to Strauss & Corbin

(1990), this process allows researchers to break down data into code-able and manageable

chunks before the actual analysis. After the first generic cycle coding, the researcher will then

conduct a second generic cycle coding over the first coding as a cross validation exercise to

further condense and distill the participants’ responses in a meaningful and interpretive format.

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The coding process (strategy) for this research study will be conducted in three stages.

As aforementioned, the researcher will conduct the first two coding cycles (first and second

generic coding cycles) to help break down and condense the participants’ responses, so that this

research study can get to the core meaning of the participants’ “lived experiences”. These initial

coding cycles (first and second generic coding cycles) allows the research to, first, have an open

condensational coding done on each of the interview transcripts, thus allowing for the second

generic cycle coding to detect any distinct patterns of similarity in the participants’ responses.

This strategy allows the coding process to extract the core meaning behind the participants’

“lived experiences”, or what they have expressed in their interview responses. Additionally,

even though the first coding process will break down the participants’ responses into manageable

format, the condensed coding will still accurately represents the thoughts and “lived

experiences” of the participants.

The second step (the second generic cycle coding) will give the researcher additional

opportunity to further condense the first cycle coding down to a level that truly captures the

essence of what the participants were saying. Finally, the third stage (which the researcher also

like to refer to as the category stage) will allow the researcher to condense each line of the

second cycle coding down to few words that will fully encapsulate and accurately represent the

core meaning behind each responses by the participants. In the category coding, the researcher

will ascribe few words to capture the core meaning of the “lived experiences” of the participants.

As a qualitative researcher, it is important that the researcher conduct the research coding in a

transparent and unambiguous manner; hence this process will allow the research study to

accomplish the goal it set out to accomplish. Utilizing the generic coding method allows the

researcher to meticulously and methodologically break down the participants’ responses without

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diminishing or misrepresenting the core meaning of their responses or “lived experiences”.

Finally, the researcher will also utilize similar coding processes for the research themes to

capture and represent the “lived experiences” of the research participants.

Credibility apparatus for the research study

Trustworthiness:

This research study intends to examine the impact of the Sarbanes-Oxley Act (also

known as SOX) on the small-sized publicly traded companies and the local communities they

operate in. In order to be able to examine the impact of the Sarbanes-Oxley Act on small-sized

businesses and their communities, this research study will have to develop a mechanism that

allows for it to authenticate its findings and make sure its findings are not cue or defective in

anyway. Graneheim & Lundman (2004) stated that “Research findings should be as trustworthy

as possible and every research study must be evaluated in relation to the procedures used to

generate the findings” (p. 109). As a qualitative study, this research study has to have a

trustworthiness authentication ring to it. One way to accomplish this goal is to adhere to

Moustakas’ advice; Moustakas (1994, p. 86) believed that “the challenge of the Epoche is to be

transparent to ourselves, to allow whatever is before us in consciousness to disclose itself so that

we may see with new eyes in a naïve and completely open manner.” As a result, this research

study will present a “thick description” of the “lived experiences” of the participants to the

audiences (readers) of this study (Geertz, 1973; Creswell, 2007). However, for this “thick

description” paradigm to permeate throughout this study, Creswell (2012, p. 262) noted that it is

important for researchers “To check the accuracy of their research, qualitative inquiries often

employ validation procedures such as member checking, triangulation, and auditing.”

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Member checking:

Member checking is another tool that is at the disposal of a qualitative research

methodology. As a qualitative process, member checking is an avenue (tool) for verifying and

authenticating the accuracy of research findings. Member checking allows the researcher to

consult with one or two of the research participants for accuracy of the information received

from them (Creswell, 2008). As members of a qualitative research study, participants have the

rare opportunity to confirm or refute parts or all of the research findings, if they believe that their

information were not represented or presented accurately. According to Thomas (2006), he

stated that participants in the studies are “given a chance to comment on whether the categories

and outcomes described in the findings relate to their personal experience” (p. 244).

This mechanism is another tool that researchers can utilize to make sure that the research

findings and data have been “weighed and checked” in every way possible for accuracy. The

fact of the matter is that, in any qualitative research study, credibility is very important because

for a research study to be transferable into another qualitative study, the data and findings of the

original research study must be credible and reliable. Graneheim & Lundman (2004, p. 109)

reaffirmed the issue of credibility in qualitative research methodology by asserting that “In

qualitative research the context credibility, dependability and transferability have been used to

describe various aspects of trustworthiness (for example, Guba, 1981; Lincoln & Guba, 1985;

Patton, 1987; Polit & Hungler, 1999; Berg & Welander-Hansson, 2000)”

Triangulation:

As another mechanism for checking the accuracy of qualitative research data and

findings, triangulation truly allows research studies to verify “information using a variety of

sources and methods” to authenticate the veracity of the findings of a study (Maxwell, 2005, p.

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93). Triangulation is another way of verifying the accuracy of research findings through data

facts-checking and looking at any other source to make sure that the data is valid (Creswell,

2008; Creswell, 2013; Lincoln & Guba, 1985; Flick, 2010; Saldana, 2013). Triangulation is also

seen as a way of corroborating and weighing the research findings through other data for

validation (Creswell, 2008; Creswell, 2013: Lincoln & Guba, 1985; Saldana, 2013; Thomas,

2006). To triangulate, researchers must collect information from different sources for

crosschecking the accuracy of the research study in question (Creswell, 2008; Lincoln & Guba,

1985). Some of the ways of crosschecking data and sources in a qualitative research study

involves the examination of the interview transcripts, research artifacts, research observation

journals, researchers’ memos, and any other important documentation that may be relevant to the

research study (Creswell, 2008; Lincoln & Guba, 1985).

According to Denzin (1989), he conceptualized triangulation into four categories: the first

is data triangulation, which basically means the use of different data as a way to corroborate the

research data. The second triangulation according to Denzin (1989) is called investigator

triangulation. This triangulation basically tries to detect and minimize biases from the research

findings. The third triangulation is known as the theory triangulation. The point of this

triangulation is for the possibility of producing acquirable knowledge from the research study.

The last of Denzin’s (1989) four types of triangulation is called methodological triangulation.

This type of triangulation allows for data to be triangulated within and between methods in order

to affirm the research data and findings. Therefore, as a commitment to conducting thorough

investigative work, and also for the sake of credibility and confidence in this study, this research

study will utilize the triangulation mechanism and member checking mechanism to authenticate

the accuracy of the data and findings in this research project.

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Auditing:

As an added component and mechanism to the validation and accuracy of the data and

findings in this study, the audit system will allow the researcher to conduct a thorough audit on

all the data collected in this research study as a compliment to the other components (member

checking, triangulation, quality and verification). Auditing is mainly about making sure that the

data and findings in this study are transferable and authenticable. Qualitative research approach

is a methodology that is uniquely positioned to make certain that its studies are “context filled”

and still able to deliver accurate and rich interpretive narration of the “lived experiences” of the

research participants (Creswell, 2012, 2013; Lincoln & Guba, 1985; Merriam, 2009).

This process of research auditing is basically a way of examining the research data and

findings to make sure the data and findings are presented accurately. This calibrated way of

reviewing the research study requires careful attention to details, especially the data collection

procedures (Creswell, 2012, 2013; Merriam, 2009). Therefore, in this research study, the

investigation process will involve interviewing two officers of small-sized public companies.

Protection of human subjects:

As a qualitative research study, it is imperative and ethically important that this research

study (The impact of the Sarbanes-Oxley Act on the small-sized publicly traded companies and

their communities) is cognizant of the right and privacy of the individuals participating in the

project. It is anticipated that the participation in this study will be strictly voluntarily based and

the risks to the participants will be very minimal. It is, however, important that no harm should

come to the participants in this study. This research study will provide adequate measures of

protection for the rights and dignities of its participants, because participants in this study should

be better off knowing they were able to tell the stories of their “lived experiences”; not worse off

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from it. Rubin & Rubin (2012) expressed the issue of not harming research participants this

way, they stated that “Not harming interviewees means not exploiting them, not publishing

materials that would cause them to be arrested or lose a job, promotion, or part of their income.

It means not revealing information they would consider embarrassing” (p. 89). With that

statement, this study will vigorously protect the wellbeing and safety of it participants. Flick

(2010) also stated that “Welfare in this context is often liked to weighing the risks (for the

participants) against the benefits (of new knowledge and insights about a problem or of finding a

new solution to an existing problem)” (p. 40). Therefore, protecting the participants’ identities

and wellbeing will be paramount to this research study.

In addition to the above statement, this research study (The impact of the Sarbanes-Oxley

Act on the small-sized publicly traded companies and their communities) will also provide full

disclosure in its application for Approval for the ‘Use of Human Participants in Research’ with

the Northeastern University (NU) Institutional Review Board (IRB). Also as part of this process

of protecting the rights and privacy of the individuals involved in this research study, invitational

letters will be sent to all the prospective participants (mainly from the population pool of current

or former officers of small-sized publicly traded companies in America), seeking and soliciting

their participation in the research study. According to Creswell (2012), the ethical treatment of

research participants is a vital concern to the federal government; he stated that “Federal funds

could be withheld from campuses if research conducted on those campuses did not protect the

treatment of participants” (p. 22). This research study will sought to examine the impact of the

Sarbanes-Oxley Act (also known as SOX) on the small-sized publicly traded companies and the

communities they operate in. As an avenue to accomplish this goal, this research study has

elected to utilize the Interpretative phenomenological analysis (IPA) approach to help navigate

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the examination of the impact. However, as a qualitative approach, only the individuals who are

knowledgeable in the securities markets will be invited to participate in the research study.

For additional safeguards and confidentialities, this research study will delete any and all

identifiable names and/or images that can be trace back to the participants from any reports

and/or findings in this research study. In addition to that, this research study will utilize the

pseudonym in place of participants’ names; thereby giving the participants added protection and

peace of mind. This research study will protect the dignities and rights of its participants.

Fraenkel & Wallen (2009) discussed the issue of vulnerability among research participants.

They made it clear that research participants should never be in a state of vulnerability because

they participated in research studies. According to Fraenkel & Wallen (2009), they believed that

“Participants deserve to be protected from such vulnerability” (p. 452). Flick (2010) went

further and asserted that beyond the protection of participants’ rights, “researchers need to

guarantee participants’ confidentiality, which means that the information about them is only used

in a way which makes it impossible for other persons to identify the participants” (p. 40).

As stated above, the purpose of this interpretative phenomenological research study is to

examine the impact of the Sarbanes-Oxley Act on the small-sized publicly traded companies and

the communities they operate in. The participants who will be invited to partake in the research

project will be well informed of what the study is all about and their rights and privacy to

participate if they choose to (or not). As for the protection of participants, Creswell (2013)

advised that researchers should never “pressure [their] participants into signing consent form”

and should “Avoid deceiving participants” (p. 58). Additionally, Rubin & Rubin (2012) also

stated that “In addition to not pressuring people to participate in the project, you should not push

an interviewee to respond to a question if he or she seems reluctant” (p. 88). Ultimately, the

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protection of the participants’ rights and dignities will depend on the physical protection and

securement of the research data. On that note, as a matter of priority, the physical securement of

the research data shall be paramount to the integrity and credibility of this research study. This

study will provide both a password-sensitive computer storage system and a physical cabinet

storage system for the safekeeping of the research ‘hard copy’ data. Rubin & Rubin (2012, p.

87) rightfully stated that "Protecting confidentiality may mean maintaining data in a way that the

information cannot be used in a court of law. It means keeping the interviews in a secure place..."

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Chapter 4: Report of Research Findings

Overview

In the early 2000s, the United States of America experienced an incredible amount of

corporate collapses and account manipulations propagated by many of the country’s major

corporations. Among these corporations were Enron, Adelphia, WorldCom, and Tyco

International, to name but a few. In the case of Enron, the company’s executives manipulated

and falsely misrepresented the company’s accounting reports to the Securities and Exchange

Commission (SEC), the general investing communities, and their employees who had invested in

the company’s stocks. However, while the company was tanking, the executive officers were

selling their stock options and pulling out of the markets to avoid losing money. The failure of

this giant energy company plus the failures of many other publicly traded corporations in the

markets, at the time, led to the loss of faith and confidence in the American securities market

systems (Allio, 2009). This situation prompted Congress of the United States to enact a law that

was supposed to tighten the internal control systems of the publicly traded companies in the

United States. In other words, these humongous debacles became the catalyst that forced

Congress to pass a bill that was purported to help protect the American investors by creating an

atmosphere of transparency and accountability; in the process, this Act was expected to

strengthen the integrity of the United States securities markets.

However, the law is not without opposition. Many opponents of the law have spoken out

against the cost associated with the implementation and compliance of the law. Hunter (2007)

referenced the fact that the law is to the detriment of small-sized publicly traded companies.

According to her, she stated that this Act gave the “large companies an unfair advantage over

their smaller rivals, which must devote a larger percentage of their time, money, and human

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assets to obeying the law” (para. 6). Neal L. Wolkoff, the Chairman and CEO of the America

Stock Exchange, stated in the Wall Street Journal of August 15th

2005 that “While the intent was

laudable, the new regulations made no distinction between a [multi] billion-dollar large-cap

company and a $75-million small-cap one. This has made it extremely difficult for small

companies to compete and grow in this regulatory environment” (para. 1). Additionally, Jim

DeLoach, the Managing Director of Protiviti, stated in his article in Global Association of Risk

Professionals Journal of August 16th 2012, that he observed similar reactions from the survey

conducted by Protiviti with about 600 executives on their understanding and thoughts about the

implementation and compliance (the costs and benefits) of the Sarbanes-Oxley Act. He stated

that “Approximately, half of all companies believed that the costs outweighed the benefits to

some degree” (para, 3).

This research study investigated the impact of the Sarbanes-Oxley Act on small-sized

businesses and the communities they operate in. As it is commonly known, historically, the

American small (and medium) sized businesses have been the engine of economic growth and

stability in the United States through its investments and hiring of new workforce; a trend that

has helped create and expand the American middle-class population in the last several decades

(National Economic Council, 2011). With this understanding, this research project conducted a

very rigorous investigative research study that looked into how the Sarbanes-Oxley Act has

impacted the competitiveness and productivity performances of small-sized publicly traded

companies in America. The bottomline is that, America needs a growing economic-base and an

expansive middle-class population. However, in order to do this, America needs vibrant and

viable small (and medium) sized businesses to power and engineer the economic growths the

country needs.

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Participants’ credibility and authentication

In the process of analyzing the responses that each of these participants gave, this

research study concurred with Smith et al. (2009, p. 4) assertion that “Data collection is usually

where an interview schedule is used flexibly and the participant has an important stake in what is

covered.” In addition to that assertion, they went on to add that “Transcripts of interviews are

analyzed case by case through a systematic, qualitative analysis. This is then turned into a

narrative account where the researcher’s analytic interpretation is presented in detail and is

supported with verbatim extracts from the participants” (p.4). With all that said, this research

study began the analytical process by first including a brief background information on the

participants to help authenticate the market authority and expertise that these participants brought

to this research study vis-à-vis their educational backgrounds, work experiences, and knowledge

of the subject matter (see tables# 4 & 5 for each participant’s educational background and years

of corporate experience).

The intention was that the inclusion of their background information will help dispel any

misgivings that may be perceived as to the credibility and authenticity of these participants.

More importantly, the hope was that it will help place the participants’ responses in the

appropriate context and also help the researcher and readers understand the contextual insight

from which the participants are influenced vis-à-vis their understanding of the impact of the

Sarbanes-Oxley Act on small-sized publicly traded companies and their local communities. At

the conclusion of this chapter, a thoughtful perceptional review will be offered as an

interpretation of what the participants have expressed. As aforementioned, this research study

intends to give a thorough and undistorted rich and in-depth (thick) descriptive insight into the

information provided by the participants in this research study.

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Table# 1 - Educational levels of participants

Participant Educational Level

Ms. Pat Bachelor & MBA Degrees

Ms. Holly Bachelor & CPA Certificate

Table# 2 - Corporate experience of participant.

Participants Number of Years (Approx.)

Ms. Pat 25

Ms. Holly 32

Brief biography introduction to participant# 1: Ms. Pat

Ms. Pat is an Investor Relations Advisor to a small-sized publicly traded company (for

privacy reason, the company will be called Tropical Corp.). As a matter of fact, Ms. Pat is also

the Chairman and CEO of a wholly owned Investor Relations Advisory firm she has owned for

about 16 years. Needless to say that Ms. Pat has worked in the Investor Relations profession for

over 20 years; her experience is in investor relations, marketing, strategic planning and

management. Additionally, the investor relations programs she managed have been awarded the

prestigious Association for Investment Management and Research Award for Excellence in

Corporate Reporting and Investor Relations. As someone with vast experience and expertise in

both finance and investor relations activities, Ms. Pat also has experience and expertise in the

areas of debt and equity offerings, acquisitions, sales and crisis management.

Ms. Pat’s enormous experience is used to provide dynamic counseling to both the

executive officers and Boards of Directors of publicly traded companies in the matter of investor

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relations initiatives and capital markets positioning. She develops plans for crisis management

situations while guiding clients through financial challenges. Ms. Pat has an undergraduate

degree (B.S) in General Engineering and a graduate degree (MBA) in Business Administration.

Furthermore, Ms. Pat is a member of the Canadian Investor Relations Institute, the National

Investor Relations Institute (NIRI) Virtual Chapter, and a founding Committee member of the

Western New York Investors Conference. As a matter of fact, Ms. Pat was the immediate past-

president of NIRI’s Virtual Chapter.

Ms. Pat is a female in her mid 50s and she is an investor relations advisor to small-sized

publicly traded companies in New York State. She advises CEOs and CFOs especially on

matters relating with company’s investor relations and general financial performances. Tropical

Corporation is a small-sized publicly traded company with over $850 million in market

capitalization. This company is a technologically based company that supplies products to the

global aerospace, defense, electronics and semiconductor industries. Tropical’s products include

advanced high-performance electrical power generation and distribution systems, lighting and

safety systems, avionics products, aircraft structures, engineering design and systems

certification, and automatic test systems. In addition to the products that Tropical Corp. supplies,

Tropical Corporation’s strategy is to increase its value by developing technologies and

capabilities, either through internal means or through acquisition, and use those capabilities to

provide innovative solutions to its targeted markets and other customers where its products are

utilized.

I had the opportunity to meet the acquaintance of Ms. Pat when I was eliciting for

participants to participate in this research study. Ms. Pat was the first person who was gracious

enough to actually call me back and talk to me in person (via the telephone) to find out what I

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was looking for. Her friendliness and willingness to participate in this research study was truly

God sent at the time, because I was not sure where I was going to find qualified people willing to

spare ninety minutes to talk with me for this research interview. In actuality, Ms. Pat did more

than just partake in this research study, she helped snowball this research study invitations to one

of her friends and colleagues; she was truly the catalyst in finding the other research participant.

Interviewing Ms. Pat (via the telephone) was such a joy because she was very

knowledgeable and easy to interview. She was very assertive and came across as a very

straightforward person; she was very enjoyable to talk to; her mannerism, while talking to her on

the phone, was impeccable. However, I suspected that beneath her sharpness and knowledge,

she seemed to me to be someone who is goal-oriented, tough, and organized. Talking with her, I

visualized a person who is very generous and kind; I saw a person who went out of her way to

lend a helping hand to a total stranger (me). The impression I got from our meetings (via the

telephone and email) was a tough, but thoughtful and deliberate personality. I also thought that

her knowledge and “lived experience” stories vis-à-vis her knowledge of the impact of the

Sarbanes-Oxley Act on small-sized publicly traded companies was authentic. As a very

successful business and community leader in the New York State northern business region, Ms.

Pat exuded a wonderful standard of excellence in all her work and community involvements that

set her apart as a leader. Ms. Pat personality and socio-economic experiences makes it easy for

all the other business leaders whom she associates with to have major respect for her knowledge

and expertise. Ms. Pat’s rich and in-depth knowledge and expertise in the subject-matter made

her participation in this research study an important added value to the authentication and

credibility of this research study.

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Emergent Theme A: No impact on the local communities and the businesses

“As for community perspective, I don’t know if it had a direct impact on the community;

if we have to hire more people, I will say if we have to hire more people is more so the

result of growths; did we have to hire large amount of people, because we were getting

more business, yes.”

-Ms. Pat

In the interview, Ms. Pat was eloquent and spoke freely about the impact of the Sarbanes-

Oxley Act on small-sized businesses and how that affect the relationship between the small-sized

businesses and the communities they operate in. The contextual manner in which she explained

the relationship between the local communities and small-sized businesses made it explicitly

clear to this research study that the general assumption that the Sarbanes-Oxley Act had caused

lay-offs and business closures in the inner cities was incorrect in the sense that even though the

Act hampered the productivities and competitiveness of many small-sized businesses, the impact

did not have any direct correlation (relations) with the relationship that existed between the

small-sized businesses and their local communities vis-à-vis the creation of employment

opportunities for the local folks in those communities; if there is a viable reason to do so, she

was emphatic that it will be based on demands and growths.

As a way to put past events and experiences in a reflective mode, Seidman (1998)

advised that acts of reflection can help put into perspective (context) the way a narrative is

presented and understood. For instance, Ms Pat reflected on the relationship between small-

sized businesses and the communities that they operate in. According to Ms. Pat, she stated that

“your question is kind of interesting from the perspective of community relationship effect; so

the relationship between local communities and businesses, I would say there is very, very little

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impact on the relationship between small cap companies, [the communities], and the Sarbanes-

Oxley Act. I think that’s one thing; the other thing is that Sarbanes-Oxley itself is a huge

regulation, I mean, it’s not one thing, there are multitude of things that companies have to do and

they have to do it differently; that include something we didn’t talk about, the speed with which

companies now have to report. So there were number of factors in the passage of Sarbanes-Oxley

that impacted companies, and because of that that really impacted small cap companies.”

In our conversation, Ms. Pat recalled the journey she had to go through that got her to

where she is today. She told me that she was from a rural farm community in Iowa where

animals were traded as though they were stocks in the securities markets. As an undergraduate

student, Ms. Pat studied engineering program in college and earned her degree in General

Engineering. However, working for a regional gas company changed her life, because she was

able to transition from a technical support staff into sales management. As such, after awhile in

the position, she was given the option of either going into the unregulated business activities of

her company or transition into investor relations position; a position she confessed she did not

know any thing about at the time. She stated that “I’m an engineer by background and I was

providing technical support to the sales department, and then I worked sales management. After

that I had an opportunity to either go into unregulated businesses or a chance to do this thing

called investor relations – which I never heard of before; so I chose to do the investor relations. I

went through a lot of work training.” With her ability to navigate and maneuver herself through

the corporate world, Ms Pat was able to start her own investor relations company in partnership

with a local law firm in New York State.

Ms. Pat’s rich and “thick descriptive” journey of 20 plus years of experience in the field

of investor relations has truly grounded her in her ability to interact and navigate through the

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financial activities of many publicly traded companies. She sees herself as someone who tries to

do things the right way every time. She stated that prior to the introduction of Sarbanes-Oxley

Act, she has always advised executive officers of the companies she works for to always come

out and communicate truthfully. She said that “There are more challenges just in making sure

we do all of our duties properly; although I will tell you that from a communication’s

perspective, Sarbanes-Oxley, I don’t know if my CEOs and CFOs will agree with me on this

one, but Sarbanes-Oxley has actually help change some public companies with their

communication; the reason is because what I was professing to my clients at the time was that

the way to stay out of trouble under Sarbanes-Oxley regulatory exposure, specifically, is to make

sure that you are providing full and complete information; significant amounts of detail and all of

the coloring characters, if you will, of both your results and expectations on a “go forward”

basis, and in all of the tools that you have available to you to make this information public,

whether that is teleconference calls or other sources.”

Throughout my interview with Ms. Pat, I could tell that she was full of empathy for other

people’s state of mind and how the acts of few can devastate the wellbeing of many. She alluded

to the heartless way the former executive officers of Enron stole, lied, and cheated the employees

who have invested their 401K(savings) in the company’s stocks and the general investors who

have, with clear conscience, invested their hard-earned money in a company they thought was

being managed in an ethical and proper way. She stated that “The fascinating aspect of the

whole thing about Sarbanes-Oxley was that Enron was the big straw, if you will; one was

because the larger companies and their governances were not being done well. When your board

approves that you can violate your own code of ethics that should be a RED flag – that should be

a huge RED flag in front of every single director on the board and the auditors as well. So what

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happens then was that you have Sarbanes-Oxley, and now directors who are getting paid a whole

lot of money and auditors who have a whole lot of work to do are getting paid a lot too, but

people who were the ones who missed the boat are Enron [employees]; their CEO and CFO were

lying, cheating and stealing. They’re the ones who ended up making out in the end with the

profit – what’s wrong with this picture?”

Emergent Theme B: Penalties for rules violators

“So if you are doing your research, you have to take it apart to see how it was perceived

by the general public, because the Sarbanes-Oxley is a tantrum swing. You have folks

out there who are scheming, they ruin many investors’ lives, they ruin many people’s

lives, and they ruin a lot of communities as a result of the improper behavior of some

people. So, Sarbanes-Oxley is a protector that is created to prevent something like this

from [ever] happening again.”

-Ms. Pat

Throughout my interview with Ms. Pat, she reflected on the issue of honesty and “doing

the right thing at all times.” She asserted that “The thing is that you have to surround yourself

with people that are honest; auditors have to make sure they are doing their jobs, legal counsels

have to do their jobs, we the IR advisors, I have to make sure that we are straightforward and

honest and ethical in our behaviors.” In my conversation with her, I asked her to reflect on her

20 plus years experience in the investor relations field whether any Act has ever been as

impactful as the Sarbanes-Oxley Act. According to Ms. Pat, she said that in her 20 plus years of

experience as an expert investor relations and financial management, she has never experienced

any regulatory Act as comprehensively impactful and detrimental to small-sized publicly traded

companies as Sarbanes-Oxley has been. However, she did also say that doing the 80s, there were

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regulatory Acts that were impactful and hard to swallow for many businesses, but none of them

were as devastating as the Sarbanes-Oxley Act.

In the interview, Ms. Pat affirmed that the essence of the introduction of the Sarbanes-

Oxley Act in 2002 was primarily to penalize and criminalize the violation of the securities

market rules. According to Ms. Pat, she reiterated that the new Act was not created to introduce

any new rules to the market place, but to strengthen the existing ones. She was very aware of the

Act and its impact on the business communities, because it was what many businesses were

consumed by in the early 2000s. She stated that “Interestingly, I started my firm on the 1st of

July 2000 and the Sarbanes-Oxley was issued, I think, around August 2nd

or 4th of 2002; so I am

very, very aware of how impactful it was for companies…” She went on to say that “Everybody

concerned actually believes that the previous laws was going to go away, but what folks did not

understand about Sarbanes-Oxley was that they hadn’t created any new rules, what they had

done was basically created penalties as a result of violations.” According to Ms. Pat, she stated

that federal regulatory law “always never permitted [anyone] to provide material information on

a selected basis; material information was not supposed to be disclosed in a selected basis.” Ms.

Pat gave an example of what the new regulatory Act, Sarbanes-Oxley Act, prohibited the

publicly traded companies from doing; she stated that as part of Sarbanes-Oxley Act “certain

spoke-people like the CEOs/CFOs and/or the investor relations Advisors’ were not allowed to

share information only with specific audience which could be anybody in the wall street

community i.e., investor brokers, etc. You could personally be fined for violating the regulation

for such disclosure; so that was the big difference and they were much more particular about

things like that.”

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However, what frustrates the majority of small business leaders is having to go through

all the regulatory compliance changes and spending a lot of money trying to adhere to the

internal controls oversight that the Act requires; their thoughts and frustrations are that this Act,

or any other Act, would not be able to prevent any twisted and criminal minded person from

trying to commit similar crime comparable to what happened in the early 2000s. Ms. Pat echoed

similar frustration in her response to my interview question; she stated that “So the impact of the

Sarbanes-Oxley on businesses have been the way they experienced it, and also because of the

extra regulatory processes that is added to the expenses they have to incur; the additional

equipments they have to provide in order to comply with the Act, the incremental hours for

internal controls… [More importantly, the most perception out there is] that all of these extra

activities and steps will amount to nothing, especially preventing what happened, which was

basically, you know, fraud.” According to her, she believed that “The cost of implementing

Sarbanes-Oxley Act was all in the procedural processes; the account bound process which has

been placed on the companies and the legal liability that has also been placed on the companies.

There are more challenges just in making sure we all do our duties properly, [it was very

overwhelming for many of the companies].” This is something that literally drove many small-

sized businesses out of the market places (stock exchanges) and back into private ownership.

Emergent Theme C: Financial and investor advisory

“I’m literally like the investor relations officer in-house for them, and I have been

responsible for helping them understand – helping management, CEOs/CFOs, understand

how well to proceed with decisions they make, you know, strategic direction that we take

and I’m also responsible for helping the investors understand what it is the management

is doing; why we’re performing the way we are and why we make the decisions we are

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making. As long as they understand all the financial details that is reported, everything

that gets filed in our SEC filings, as well as we do the communication we need to do for

press releases and presentations. I do a lot of communication directly with just the

investors; acted as spoke-person for the company.”

-Ms. Pat

In this interview we discussed what investor relations advisor do and how they do their

job. Ms. Pat reiterated that as an investor relations advisor, it is her responsibility to represent

and communicate her company’s financial stabilities and performances to all her company’s

investing constituencies. From her point of view she acts as the spoke-person for the company

when it comes to communicating with their investors and investing communities. Though her

journey and transition into the investor relations field was by accident, Ms. Pat stated that her

career in 1991 was as an engineer and a technical support associate in a regional gas company in

New York State. In that role, she supported the sales department with technical assistance;

however, she was able to transition into the sales management position and then eventually had

the opportunity to branch out into a different department within the company. At this junction in

her career, Ms. Pat was given the option of either going into the unregulated business side of the

company or go into the investor relations department – a position and profession she said she

was not familiar with at the time. Nevertheless, Ms. Pat chooses to go the investor relations

route. In that position Ms. Pat was trained and equipped with all the resources and tools she

would need to perform her job adequately. However, in 2000, Ms. Pat made a bold move by

transitioning into owning her own investor relations firm in partnership with a local law firm in

New York State. Today, the firm that she co-owned with a law firm in 2000 is now wholly

owned by her; she said she bought out the law firm and now owns the firm outright.

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Ms. Pat’s experience goes back to the 90s when she made the transition into the investor

relations department of her then employer (a regional gas company in New York State). Today,

however, with her investor relations firm, she represent over five publicly traded companies as

their investor relations advisor; advising the CEOs and CFOs of those companies on issues that

are financially impactful to the viability and vitality of their businesses. She sees herself (and

her firm) as the “IR [investor relations] advisor for these companies, basically being their

outsource IR department.” This position affords Ms. Pat the opportunity to advice and

communicates with both the executives of these public companies that she represents and also

with the investors who invest in those companies. Ms. Pat described her responsibility as

“helping the management, CEOs/CFOs, understand how well to proceeds with decision they

make, i.e., strategic direction that we take and I’m also responsible for helping the investors

understand what it is the management is doing.”

Emergent Theme D: Extra burden on small-sized businesses

“The biggest perception out there is that you have a whole lot of burdens that is put on

these companies that is not there to prevent another catastrophe from happening.”

-Ms. Pat

Throughout the course of my interview with Ms. Pat, she was insightful with her

responses and she paid attention to detail when it comes to the true impact of the Sarbanes-Oxley

Act on small-sized businesses in America. Ms. Pat believes that the “impact of the Sarbanes-

Oxley Act on businesses was the way the businesses experienced it, and also because of the extra

regulatory processes that were added to the expenditures they had to incur.” For example, she

stated that they are impacted by the fact that they had to purchase extra equipments in order to

comply with the Act’s requirements. In addition to that, Ms. Pat felt that many small-sized

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companies are burden with the fact that they have to pay for the extra hours that their folks had

to work to get caught up with the processes that the regulatory Act requires. As for the cost

factor in all of these procedures, Ms. Pat believes that “The cost of the Sarbanes-Oxley Act was

all in the processes,” she asserted that part of the reason why there were financial cost associated

with the implementation of the Sarbanes-Oxley Act lies in the fact that the way some businesses

were conducting business prior to the introduction of Sarbanes-Oxley was old and changes was

needed, but change is always very expensive. For example, Ms. Pat argued that “There are more

challenges just in making sure we do all of our duties properly.” She gave me insight into how

some aspects of the Sarbanes-Oxley Act has somewhat enhanced the corporate governance of

publicly traded companies. She stated that “although I will tell you that from a communication’s

perspective, Sarbanes-Oxley, I don’t know if my CEOs and CFOs will agree with me on this

one, but Sarbanes-Oxley has actually changed some public companies with their

communication.” She went on to say that “the reason is because what I was professing to my

clients at the time was that the way to stay out of trouble under Sarbanes-Oxley regulatory

exposure, specifically, is to make sure that you are providing full and complete information.”

Trying to hide negative internal control details from the authorities and the general investing

communities is never a good way to manage a business enterprise. Therefore her advice was

valid and warranted, because it is always better to disclose everything and let the chips fall

wherever they may, than to embark on a lying adventures. That would only exacerbate the issue.

As part of our conversation, Ms. Pat enlightened me on how the business communities

perceive the impact of the Sarbanes-Oxley Act on businesses. Her insights and advice was that

“if you are doing your research, you have to take it apart to see how it was perceive by the

general public, because the Sarbanes-Oxley is a tantrum swing; you have folks out there who are

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scheming, they ruin many investor’s lives, they ruin many people’s lives, they ruin a lot of

investing communities as a result of the improper behavior of some people.” In addition to that,

Ms. Pat also believes that “Sarbanes-Oxley is a protector that was created to prevent something

like this [the debacles of the early 2000s] from ever happening again.” However, she believes

that at the end of the day, “many CEOs of small cap companies would also tell you that you can’t

regulate honesty. The thing is that you have to surround yourself with people that are honest;

auditors have to make sure they are doing their jobs; legal counsels have to do their jobs; we the

IR [investor relations] advisors, I have to make sure that we are straightforward and honest, you

know, ethical in our behaviors.”

As for where small-sized companies go from here, Ms. Pat alluded to the changes that the

Act has brought to many businesses; she talked about the positive impact of the Sarbanes-Oxley

Act on her company’s market performances; she stated that “so Sarbanes-Oxley’s [impact on us]

when it first came out versus where we are today is almost like we’re talking about two different

companies.” However, she argues to the contrary on the difficulties that many small-sized

businesses are finding themselves in in-order to attract institutional investors to invest in their

companies. She stated that the fact remains that if “you’ve got 5000 small companies, small

mid-cap companies, that are competing for the attention of the same institutions versus the others

that are much larger; the fact remains that the large companies don’t compete for the attention of

these institutions, because the institutions comes to them.” Furthermore, Ms. Pat believes that “if

you are a small cap company you have to constantly go out there in order to create the

information efficiency which is how you ensure that your company’s value is recognize in the

capital markets; as a small cap company you have to work harder for it.”

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Emergent Theme E: Technology allows for open (information) communication

“I used to do conference calls long before there was Sarbanes-Oxley for efficiency

purposes, right? But now what this [Sarbanes-Oxley Act] did was that it helps create –

what’s defined as a public forum; so not only is teleconference is effective from

efficiency stand point, you now have everybody on the call, the CEOs and CFOs; all the

information are out there.”

-Ms. Pat

According to Ms. Pat the introduction of technological devices in the delivery and

dissemination of information by many CEOs and CFOs has truly revolutionized the way many

companies conduct business today. She believes that “what Sarbanes-Oxley did was to actually

create more of a level playing field, if you will, for everybody to get all the information at the

same time, because now you have the technology i.e., we have the cell-phones and we have the

webcams (webcasts).” In today’s business environments, Ms. Pat argues that we have “more

public forums [to use for delivering information to the general public].” Because of the

availability of easy access to technology, she believes that it is part of the reason “why

companies webcam a lot of the presentations that they do for brokerage houses to make sure that

the information is broadly disseminated and that it is not just for people sitting down in the

audience that are sharing the information.”

With all that said, Ms. Pat did not believe that the “information that the CEOs and CFOs

were providing have changed.” According to her, the only thing that has changed is the vast

array of means that companies now have to communicate with their constituencies; therefore the

information has not changed, but it “has evolved as it should be.” As a matter of fact, Ms. Pat

categorically and emphatically would not “credit Sarbanes-Oxley with changing [the business

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culture].” According to Ms. Pat, Sarbanes-Oxley Act only “changed the understanding of the

impact of the information they were disclosing [and the penalties involved in disclosing material

information that are not supposed to be disclosed or shared].”

In our conversation on the issue of delivery and dissemination of information and the

impact of technology in the dissemination of these information in today’s business environments,

Ms. Pat reflected back on the things she had to do to communicate her company’s information to

the investing and business communities; she stated that “If you went back to 1991, I did two

press releases, I would do one press that had two paragraphs in it, one paragraph says this is what

our revenues were and the other paragraph would say this is what our earnings were.”

According to Ms. Pat, the information would then be given to the wire services for transmission;

the reason why the information were so short was because the technology at the wire services

were so inadequate they could not transit any addition information; that was all they could

transmit. More importantly, according to Ms. Pat, she stated that “that’s all the financial media

outlets wanted to get, they didn’t want any more information than that (she laughed).” For

broader communication to interested investors who wanted detail information of the company’s

performance, she “would do another press release with seven or eight page long, that I would

then fax to the investment communities that were interested in the great detail behind the

financial results.”

Today, however, because of technological innovation, Ms. Pat believes that she can

“pretty easily put a seven or eight page press release anywhere and everywhere. Technology

wasn’t around to allow me to do that twenty five years ago.” The fact of the matter is that

information and “masses of information are available to everybody, because of the internet;

that’s part of what changes here too.” As a rhetorical question, Ms. Pat asked, “So how much do

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you credit Sarbanes-Oxley that say that you have to tell everybody [the same information] all at

the same time versus I can now actually do it, because of technology?”

Brief biography introduction to participant# 2: Ms. Holly

Ms. Holly is a seasoned financial and accounting professional expert with over 30 years

of experience. She has successfully developed, led and executed financial and accounting

corporate strategies for her previous employers. Her dynamic knowledge in global corporate

challenges makes her an exceptional person in the field of corporate finance. At Covington

Corp. (a pseudonym name for privacy reason), Ms. Holly served in various executive and

financial positions for 17 years, including Vice President – Strategic Initiatives, Vice President

and Treasurer, Vice President – Controller and six years as the Vice President – Finance and

Chief Financial Officer before retiring in 2012. Prior to joining the Covington Corporation, Ms.

Holly worked for an international public accounting firm for eleven years as a Senior Manager in

the company’s audit department. Ms. Holly is a certified public accountant (CPA) with Bachelor

degree in Business Administration and Accounting from a regional university in New York

State. As a community leader in New York State, Ms. Holly is on the President’s Advisory

Board of her Alma-mater, as well as a member of the university’s College of Business

Administration Dean’s Advisory Board. In addition to all that, Ms. Holly is also a member of

her church’s accounting/audit committee and an active volunteer in all of her children’s school

and community activities.

In my interview with Ms. Holly, I asked her what got her interested in pursuing

accounting as a profession. She recalled her passion for the profession from the day of her high

school years when she was exposed to accounting and then transitioned into college where she

continued with the passion. She stated that she “studied accounting in college and I initially got

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interested in that field of study based on the exposure to it in high school and I seemed to have

proficiency, if you will, in accounting.” She went on to confirm that “upon graduation from

college I started working for an international public accounting firm and I earned my CPA.”

According to her personal story, she also confirmed that after working for the international

public accounting firm for 11 years, she decided at that juncture in her career she wanted to

transition into the corporate world. She stated that “I was interested in a corporate role, you

know, in financial and accounting management.” In addition to that, Ms. Holly also added that

she “was initially interested in accounting, but then, you know, as I progressed I got interested in

opportunity to influence the company and the direction of the company; you know, the business

of the company in addition to the accounting responsibilities.”

Ms. Holly is a female in her mid 50s and she was the former Chief Financial Officer

(CFO) at the Covington Corporation (pseudonym), a New York State based Multi-national

Engineering Corporation. In this position, Ms. Holly was responsible for varieties of things

specifically from a financial perspective. She was responsible for the external public and

internal management reporting of the company and she was also responsible for reporting to the

board as well as to other constituencies, i.e., the banks and other financial institutions. As the

CFO, Ms. Holly was responsible for her company’s internal control framework. Covington

Corporation is a small-sized publicly traded engineering company with approximately $316

million in market capitalization. This company is a multi-national New York State based

company; In addition to the corporate office being in New York State, the company also has

branches and offices in Brazil, Canada, China, Europe, and Mexico. The company’s products

are numerous to list, but these are some of the products they designs, manufactures and marketed

- different brands of Hoists, Rigging, Lifters, Tire Recycling, and many more.

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Covington Corporation is a world leader in designing, manufacturing, and marketing of

material handling systems and services; products that are economical, efficient, and ergonomical

to move, lift, position, and/or secure materials. As a century plus old company, 141 years to be

exact, Covington Corp. is focused on designing, manufacturing, and marketing products that are

commercially and industrially applicable and useable. More importantly, this company’s priority

is to provide safe and quality products to their customers. As a global corporation, Covington

Corporation has over a century old experience and expertise in providing products and solutions

for commercial and industrial manufacturing and construction professionals. Finally, as a

company that pride itself in safety and quality, Covington’s brands are well-known and

developed to attract and keep her loyal customers all around the globe.

As a participant in this research study, I had the opportunity to meet Ms. Holly through

Ms Pat’s invitation. Ms. Holly is a friend and colleague of Ms. Pat; through this connection, I

was fortunate to meet her acquaintance. Ms. Holly is the second person to participate in this

research study and I am more than grateful that she agreed to partake in this research study. Ms.

Holly’s expertise and knowledge of the subject-matter was incredible. She was incredibly vast

in her knowledge of corporate finance and specifically the impact of the Sarbanes-Oxley Act on

businesses all across the country, especially the small-sized businesses. I found her responses

and explanation of the impact that Sarbanes-Oxley Act had on businesses to be compiling and

authentic. More importantly, what I also found to be more compiling and genuine about her, was

her kind heart. Ms. Holly was very generous and kind in every way from my first

communication with her. I remember very vividly how she received me, my research project,

and the prospect of interviewing her for this research study; in one sentence, she was gracious

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and acceptance of all the questions I posed to her. Additionally, she even volunteered to answer

any additional questions in case I needed clarifications and/or additional information.

For procedural purpose, this interview was conducted via the telephone. In our interview

discussion, I found her to be very detailed-oriented and assertive in all her responses. Ms. Holly

came across as someone who is thoughtful, deliberate, and organized; she seemed kind and

generous with her time and space. As aforementioned, Ms. Holly is a major business and

community leader in and around the northern region of New York State. She is not just involved

in local business communities; she is also involved in the every day societal activities. She is an

active member of her northern New York Catholic Diocese Audit Committee as well as an active

advisory member of two regional colleges in the northern New York State areas. Ms. Holly’s

rich knowledge of the impact of Sarbanes-Oxley Act, I believe, truly gives this research study

the authentication and credibility it needs. The truth of the matter is that participants like Ms.

Holly have shown their enormous experiences and expertise in the areas of corporate financing

and federal regulatory compliance management. I believe that her eloquent responses vis-à-vis

her responses to the questions she was asked elevated and authenticated the findings in this

research study.

Emergent Theme A: Initial limited interpretation of SOX and the internal controls

“At that time there was limited amount of interpretation available, so there were a lot of

questions as to what the rules meant and the sense of requirements”

-Ms. Holly

In my interview with Ms. Holly, she asserted that at the initial stage of the introduction of

the new Act, Sarbanes-Oxley Act, many small-sized businesses were confused and overwhelmed

with the compliance requirements of the new law. Even though, the Act was passed and

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automatically became the law of the land, many of the folks who were supposed to implement

the requirements of the new law were dumbfounded as to where to start or what to do with the

implementation of the Act. At the time the new Act was enacted and passed into law, Ms. Holly

stated that she “had the opportunity of being with the Covington Corporation when Sarbanes-

Oxley Act was passed and instituted; so I believe it was in July of 2002 and I was the vice

president and corporate controller at the time; we had the responsibility of implementing the

Sarbanes-Oxley rules.” She described what many companies had to go through in order to first

understand what to do and then how to go about implementing the new rules. She stated that she

“remembered it vividly, and that we had to assign people within Covington Corporation

responsibilities for documenting our controls and procedures, and our internal audit manager

played a critical role in that regard.”

According to Ms. Holly, the general opinion at the time the Act was introduced was in

concert with hers. She stated that “I can tell you my opinion, obviously I have a different

opinion, but a lot people that I talked to about it had opinions similar to mine in that we felt that

initially the requirements of the Act on phase one was a little too far to the extreme, but

subsequently after that, there was some easing of the requirements once interpretation came out

in terms of what the expectations were.” She went on to say that “I think the driver of that

[confusion] was the public accounting [auditing] firms that had the responsibilities of auditing

the controls and signing off on them [the reports].” According to Ms. Holly, she felt that the

auditors exacerbated the situation, “because it was a new function for them; for those internal

control auditors, they were very careful in terms of what requirements meant; so they probably

over compensated initially because of that.”

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In our discussion, Ms. Holly argued that even though Sarbanes-Oxley created additional

burdens on the small-sized publicly traded companies, she believed that the Act did creates

opportunities for many companies, companies such as hers, to strengthen their internal control

management. She stated that “So it was quite an undertaking in terms of the amount of work,

because it was a lot of documentation.” However, she added that by “going through that

exercise, we identified opportunities where controls could be strengthened and enhanced.” As a

new regulatory law that every company, whether small or big, had to comply with, it “created

additional procedural activities that needed to be performed by people on a day-to-day basis

throughout the organization.” As such the new procedural process has to permeate throughout

the organization; Ms. Holly argues that responsibility did not just fall on the shoulders of the

accounting and financial people in her company, but on every departmental personnel in her

organization. She stated that “it wasn’t just the accounting people, it was people throughout the

company including people responsible for processing sales orders, people in our factories

responsible for shipping products; all of these types of activities involved procedures that can

ultimately impact the customers and risk breaking down the internal controls; so there was

opportunity to enhanced those controls, which we did.”

Therefore as a mechanism for compliance, the process that many companies, especially

small-sized companies, had to go through was a little too tedious and challenging, not to mention

the fact that it was costly. Ms. Holly illustrated the length that her company had to go to comply

with the new requirements. In remembering the things she had to do to comply with the new

rules, Ms. Holly believes that Sarbanes-Oxley Act “created an environment of accountability for

people beyond just the accounting department.” Additionally she remembered that her company

used the opportunity to make the process “part of our 10K and 10Q process, we held quarterly

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Sarbanes-Oxley meetings with key personnel throughout the organization and our factories

around the globe as well as the corporate office.” According to Ms. Holly, the idea was to create

a review system that would allow every relevant employee to “sign off on the key controls that

they have performed.” She believed that “there were certain identified key controls that was on

the Sarbanes-Oxley list; this is a 2 page list of questions that they had to respond to each quarter

and provide to me to indicate whether they had performed the tasks.” In addition to having these

employees sign off on the checklists, Ms. Holly also made it mandatory that all the relevant

personnel have regular “meetings just to be sure that their responsibilities were not taken for

granted.” In essence, according to Ms. Holly, that “created a lot of new work within the

organization for compliance purposes as well as for the establishment of new controls.”

Therefore, according to Ms. Holly, internal control management was a major sticky and

important requirement of the Sarbanes-Oxley Act. Even though the implementation of the new

law did not specifically require any additional hiring for her company, Ms. Holly found the

indirect demand that the requirements placed on her company to be too excessive and time

consuming. She stated that “…so, again, it didn’t cause us to add people, but it diverted some of

the attention and nature of work that was performed [so much so] that it increased the focus on

internal controls and compliance.” She added that even though her company, Covington

Corporation, was a U.S. based company, the “company has manufacturing operations around the

world; numerous locations, such as throughout the United States, throughout Europe, China,

Mexico; some offices in Canada and Brazil, so it is truly a global company,” With respect to the

impact of the Sarbanes-Oxley Act on employment opportunity in the areas and communities that

her company operates and participates in, Ms. Holly stated that she did not “believe that it

[Sarbanes-Oxley Act] had any significant direct impact on employment; perhaps it had an

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indirect impact, [because it clearly added procedural processes for people to undertake in order

for the company to comply with the Act].” But at the end of the day, they did not have to hire

any new workers for any compliance requirements.

Emergent Themes B: Cost and financial impact of SOX on small businesses

“You know what, there is one thing that I want to emphasize that I may not have had the

opportunity to emphasize on; perhaps I may have touched on it; it’s the cost, you know

the financial impact on these organizations, the small cap companies.”

-Ms. Holly

As a regulatory Act, Sarbanes-Oxley Act has been described by many in the business

communities as one of the strictest and toughest Act to deal with. At the initial stage of the

implementation of the Act, there was no sufficient interpretation of the Act’s requirements.

Many companies, especially the smaller ones, were frustrated with the Act; especially with the

cost associated with the Act. The problem was that many small-sized publicly traded companies

had to struggle to compete with the larger corporations; if that is not bad enough, they now have

to worry about the additional expenditures they have to incur to comply with the new law. To

many small businesses, they saw this as unfair and unjust. In her remarks, Ms. Holly stated that

“We talked about the burden that it had from a procedural stand point and activities stand point,

but it made it very burdensome for small cap companies to be public and as a result we have seen

a lot of companies go private, which may be a good thing.” The truth is that many small-sized

companies are finding it extremely difficult to comply with the requirement of the new law,

because it is cutting deep into their bottomline (profitability).

Additionally, many companies are struggling to meet the costs of the burden that

Sarbanes-Oxley imposed on them; Ms. Holly implied that in addition to “the cost that is

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specifically identifiable for the auditing of the internal control process,” she believes that there

were several other indirect costs that many organizations have to incur “because of staffing and

other miscellaneous expenditures.” In today’s business environment, Ms. Holly argues that

“companies now have to maintain this [activities] as part of their day-to-day activities that they

have to perform.” For these obvious and other reasons, many companies have now strengthened

and enhanced their board’s activities vis-à-vis what the members are required to do by law as

board members. Ms. Holly stated that “I think we’ve seen companies enhance their board and

naturally, that has driven up the cost in terms of companies carrying board members of high

caliber.” Even if these costs are intangible costs, nevertheless, those costs are real and they add

up. The assertion is that these costs can not necessarily be attributed specifically and directly to

the Sarbanes-Oxley Act, the fact still remains that Sarbanes-Oxley Act “created an environment

of concerns and probably heightened the awareness of the board members’ fiduciary

responsibilities which has [also] driven costs [up as well].” Ms. Holly added that “I just want to

emphasize the impact that Sarbanes-Oxley has had on many companies financial stability;” she

reminded me that the internal “controls [of every publicly traded company still] had to be audited

for compliance” and naturally, that also had some costs associated with it as well.

My interview with Ms. Holly also touched on the perception that people have vis-à-vis

the impact of the Sarbanes-Oxley Act on the business communities in America compare to other

federal regulatory Acts. In terms of the comprehensiveness between Sarbanes-Oxley and other

regulatory Acts, Ms. Holly stated that “I would say probably not, I think Dodd-Frank did put

some significant impact on us, but not to the extent that Sarbanes-Oxley did.” She added that

“Sarbanes-Oxley was really sold throughout the entire organization [in a comprehensive

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manner].” As part of the process of complying with the new law, Covington Corporation had to

hire an outside independent accounting firm to help audit their internal control systems.

As a result of all these activities that the audit companies are involved in as it relates to

auditing multiple publicly traded companies all across the country, many audit firms are perhaps

the clearest companies that would have the means and opportunity to hire new workers, at least,

at the outset of the Sarbanes-Oxley Act introduction. Ms. Holly said as much in her response to

my question about employment opportunity for local folks in the communities; she stated that

“the thing I will add is that I know Sarbanes-Oxley did have a [positive] impact on employment

opportunity for public accounting firms and their various communities.” As an example, Ms.

Holly told me about a major international accounting firm that was their auditor before they

“hired a local independent public accounting firm to audit our internal controls and to assist us

with the implementation.” Therefore, the fact that her company hired a local accounting firm to

audit their internal controls, Ms. Holly believes that “it could have created employment

opportunity for those firms, but I cannot say definitively by how much; however, knowing that

we hired them and other companies did as well, that probably would have driven employment

opportunities for many of the public accounting firms.”

Emergent Themes C: Increase in work-load and accountability

“…so it created an environment of accountability for people beyond just the accounting

department.”

-Ms. Holly

In our conversation, Ms. Holly touched on the enormous amount of paper work that her

company was inundated with in order to adhere and comply with the requirement of the new Act.

According to her, every area (or controls) that her company embarked on as a way to strengthen

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and enhance their internal control procedural processes, and at the same time still stays within

the law as stated by the Securities and Exchange Commission (SEC), all requires a lot of paper

work. In essence, the new reality was that the internal controls of many publicly traded

companies now demands more attention from every personnel in the organization than ever

before; more so than any other relevant areas (departments) in the company – this seemed to be

the new norm that Sarbanes-Oxley Act has created for many companies, according to Ms. Holly.

Sarbanes-Oxley Act essentially pitted two segments of the economy; the large public

corporations and the small public corporations were pitted against each other. Unfortunately the

pitting was not staged on a fair level playing field. In this instance, what Sarbanes-Oxley Act did

was dumped on the heads of every publicly traded corporations in America a strict and imposing

regulatory Act; in essence requiring these companies to comply with the new rules without truly

evaluating the repercussion that these requirements would have on those companies vis-à-vis

their ability to absorb the burdens that would come from the requirement protocols. The other

thing that was unfair initially in the eyes of many small-sized publicly traded companies in

America was the fact that Sarbanes-Oxley did not truly factor in the impact of the financial

burden that all these procedural requirements was going to have on small-sized publicly traded

companies. To many of the small-sized business leaders, they believed that it would have been

reasonable and relatively okay for the Act to require only the large corporations to fully adhere to

the new rules, but then lessen the restrictiveness and burdensomeness of the Act requirements on

the small-sized companies so that they can still adjust and adequately compete in the economy

without the burden of spending all their resources on the requirements of the Act. More

importantly, they felt that they were impacted and burdened by the new Act despite the fact that

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they did not have anything to do with the mismanagement issues that led to the debacles of the

early 2000s.

Ms. Holly said as much in her response to the question of how impactful has Sarbanes-

Oxley been on small-sized publicly traded company vis-à-vis the extra processes they had to

incur in order to comply with the Act’s requirements; she stated that she remembered vividly that

Sarbanes-Oxley Act “created the need for a lot of paper work, and the retention and filing of

paper work that previously hadn’t been required, and for people to sign off on the paper work; so

it created an environment of accountability for people beyond just the accounting department.”

She added that in the process her company had to assign people within “Covington Corporation

additional responsibilities for documenting our controls and procedures; as such our internal

audit manager played a critical role in that regard. So it was quite an undertaking in terms of the

amount of work, because it was a lot of documentation.” Furthermore, she added that the

process of implementing the requirements “created a lot of new work within the organization for

compliance purposes as well as the establishment of new controls.” More importantly, she stated

that “those controls had to be audited; so there was cost and procedural processes associated with

it [as well].”

Looking back on the impact of the Sarbanes-Oxley Act in an objective manner, Ms.

Holly pointed out that the effect of the impact was more painful not just to the companies that

had to go through the practical experience of transforming themselves to conform to the

requirements of the new law, but also to the customers of those companies who had to

experience the transformational journey with them. She stated that “all of these activities [that

the Act required] involved procedures that will “ultimately impact the customers and that can run

a risk of breaking down the internal controls [system that the Act purported to want to

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strengthen].” However, even though the impact of the new law was very costly as it relate to the

procedural processes that many companies had to perform, Ms. Holly’s company (Covington

Corporation) still had to undergo the process in order to comply with the law. More importantly,

for many publicly traded companies the fact was that Sarbanes-Oxley Act afforded them the

“opportunity to enhance those [internal control systems so that they can function and manage

their business activities better than ever before].” As such, taking advantage of the opportunity

to re-orient their internal control management system was a hidden benefit that many public

companies did not see coming as an advantage. Therefore, one of the things Ms. Holly believes

Sarbanes-Oxley did for public companies was the opportunity it created for accountability

among the personnel in many organizations. She stated that “it [was Sarbanes-Oxley that]

created an environment of accountability for people beyond just the accounting department.” In

addition to that, she added that the procedural processes are now part of the “10K and 10Q

process [that many public companies have to do on a day-to-day basis to be in compliance with

the law].”

Emergent Themes D: Companies and their local communities

“…so it’s truly a global company; with respect to the impact on employment in these

areas and communities in which we participate, I don’t believe that it had any significant

direct impact on employment.”

-Ms. Holly

In my conversation with Ms. Holly regarding the relationship between public

corporations and the local communities they operates in; the idea behind this question is that this

research study wanted to know if there had been any direct impact in the employment

opportunities for the local people that might have been caused by the imposition of the Sarbanes-

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Oxley Act on small-sized businesses. It is reasonably understandable to assume that when

companies (or industries) feel any negative impact on their businesses whether through market

performances or through regulatory requirements, these companies tend to withhold, be it

temporarily, any hiring of new workers. As I posed this question to Ms. Holly, her response was

direct and straightforward, she stated that “with respect to the impact on employment in these

areas and communities in which we participates, I don’t believe that it had any significant direct

impact on employment.” She added that “perhaps it had an indirect impact, because it certainly

did add procedures [to the processes] that people had to undertake to be in compliance [with the

law], but it’s not like we had to hire X number of people to be in compliance.” She stated that

they did not have to “hire additional people, we just added additional procedures to the people

we already had, for all intended purposes.”

Like many companies that were trying to understand the reality of the new regulation (the

new Act), Covington Corporation had to place more attention and resources on their internal

controls compliance. As a result, Ms. Holly stated that “The only possible exception [to the fact

that they did not have to hire any new workers during the transitional period] would be in our

internal audit department.” She confirmed that “we had 4 people including the manager in the

department before Sarbanes-Oxley, and we had 4 after the implementation of the Sarbanes-

Oxley [however, with an intensive workload]; so, again, it didn’t cause us to add people, but it

[did] diverted some of the attention and nature of the work that were performed such that it

increases the focus on internal controls and compliances.”

However, for the best opportune place where employment was plentiful, Ms. Holly

pointed to the audit industry as the industry where employment opportunity would be booming.

She argued that because they are “extremely busy testing and certifying many public

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corporations’ internal control systems all across the nation,” they are in a perfect position to need

(hire) qualified accountants and financial expertise to help with the heavy work-load they have

been inundated with. Ms. Holly argued that with what had transpired, “the thing that I will add

is that I know Sarbanes-Oxley did have a [positive] impact on employment for public accounting

firms and their various communities.” With all that said, the theory was primarily based on the

magnitude of work-load that the audit firms had to undertake to help many of the public

corporations to comply with the requirements of the Sarbanes-Oxley Act.

Conclusion

This chapter analyzed the research findings that were uncovered through the lived

experience stories of the participants on the impact of the Sarbanes-Oxley Act on small-sized

publicly traded companies and their local communities. The approach utilized for this qualitative

research method was the Interpretive Phenomenological Analysis (IPA) approach; this approach

(IPA) was defined by Smith et al (2009) as a “qualitative research approach [that is] committed

to the examination of how people make sense of their major life experiences” (p. 1). They went

on to also say that “IPA is concerned with the detailed examination of human lived experience.

And it aims is to conduct this examination in a way which as far as possible enables that

experience to be expressed in its own terms, rather than according to predefined category

systems” (p. 32). As aforementioned, interpretive phenomenological analysis approach allows

interviewees to express themselves and their lived experience stories the way they see fit without

any distortion. According to Smith et al (2009), they stated that “interpretive phenomenological

analysis is an approach to qualitative, experiential and psychological research which has been

informed by concepts and debates from three key areas of the philosophy of knowledge:

phenomenology, hermeneutics and idiography” (p. 11).

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As a qualitative research study that is investigating the impact of a federal regulatory Act

(SOX) on a vulnerable segment of the economy, the small-sized publicly traded companies, IPA

allows the investigation to uncover rich and “thick descriptive” information through the lived

experiences of the participants’ stories that can be evaluated and analyzed. The fundamental

brilliance of this approach, IPA, is that it helps to create the environment that allows transcripts

of interviews to be “analyzed case by case through a systematic, qualitative analysis” (Smith et

al, 2009, p. 4). This systematic process then turn the narratives of the lived experience stories

that the participants has expressed to be disseminated and analyzed by the researcher in his/her

analytic interpretation (Smith et al, 2009). The focus of this research study and the elicited lived

experience stories of the participants was the examination of the impact of Sarbanes-Oxley Act

on small-sized publicly traded companies and the communities they operate in. As a research

study investigating the impact of the Sarbanes-Oxley Act on small businesses, it was also

reasonable for this study to investigate any pre-determined assumptions that may be out there in

the public sphere ; assumptions that speaks to the perceived notion that the Act might have had a

direct relationship with the lack of employment opportunities at the local community levels,

especially when folks at local community levels are losing their jobs through business closures

and lay-offs by companies that are systemically outsourcing those jobs elsewhere for economic

reasons. However, those assumptions were dispelled by both Ms. Pat and Ms. Holly’s assertions

that in their cases, Sarbanes-Oxley Act had nothing to do with their employment decision

makings. Actually, they did not see any correlation between the introduction of the Sarbanes-

Oxley Act and the creation of employment opportunities at their local communities. As far as

they were both concerned, they did not see one thing triggering the other. Ms. Pat put it a little

more clearly; she stated that employment opportunity can only happen if there was demand for

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growth; in other word for employment opportunity to occur it has to be as a result of growth.

Therefore, for growth to occur, demand has to be triggered.

In the interviews, both participants agreed that Sarbanes-Oxley Act caused some burdens;

for example, the creation of new controllable that is now part of their daily activities were major

burden to a lot of small-sized businesses. Ms. Holly talked about some aspects of the new law

that are burdensome to many small-sized companies; she alluded to the extra attention that the

internal control systems now demand from almost everyone in her organization. In addition to

that, she spoke of the cost of purchasing extra new equipments (i.e., computers) for the internal

control management that the auditors were demanding as a requirement. She also discussed the

mountain of paper work and extra hours (overtime hours) that every employee in her company

had to go through in order for her company to comply with the new law. These were procedures

and things that her company had to implements after the introduction of the Sarbanes-Oxley Act.

As for Ms. Pat, she touched on the burden of financial cost that many of the small-sized

companies had to incur in order for them to comply with the requirements of the Act. She told

me of the duties and responsibilities that were required from the employees in her organization in

order for her company to comply with the Act; for example, she mentioned that her company had

to surround itself with people who are honest and dependable. She stated that auditors have to

make sure they are doing their jobs, legal counselors have to do their jobs to prevent legal

mishaps, and the IR advisors have to make sure that they are straightforward, honest and ethical

in the discharge of their duties and responsibilities on behalf of the company in order for them to

comply with the Act.

As part of the findings, this research study was able to uncover some important

information that shed light on the positive aspects of the Act. One of the positive feedback and

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comments that Ms. Pat discussed in the interview was the fact that Sarbanes-Oxley help

encouraged the use of certain technological devices in the operational management of publicly

traded companies. She gave an example of the introduction of cell-phones and webcams

(webcasts) in the delivery and dissemination of information to every interested party. Ms. Pat

also told me a story about the things she used to do in the 1990s to communicate and transmit her

company’s financial information to the investor communities. According to her, the inclusion

and availability of technological devices, as a means of delivering and disseminating important

information, has transformed the way publicly traded companies are ran and managed.

Another positive aspect that emerged from the new law was the creation of accountability

that Sarbanes-Oxley Act brought into the management of publicly traded company’s internal

control systems. Ms. Holly pointed out to me that even though many companies were, at that

time, working extra hours and processing more internal controls in order to comply with the new

law, she credited Sarbanes-Oxley for creating an environment of accountability in her

organization whereby every departmental personnel now recognizes the need that everyone has

to play a part in the procedural process. Her people now understand that it is not just the

accounting department personnel who have to answer to the internal control processes, but

everyone in the organization, including the factory and shipping personnel who have to do their

parts in the process. With all that said, chapter five will attempt to interpret the findings that this

research study has uncovered through the lived experiences of the participants. Also in the next

chapter, this research study will discuss the implications, limitations, and recommendations that

will help further the credibility and transferability of this research study findings for future

research studies.

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Chapter 5: Discussion of Research Findings

Introduction

This phenomenological research study examined the impact of a federal regulatory Act

called the Sarbanes-Oxley Act on a vulnerable segment of the economy, the small-sized publicly

traded companies. This segment is vitally important to the growth of the middle class population

in the country. The small-sized publicly traded companies all across the country are the catalyst

that transformed the economic trajectory and prosperities of many families in America. The

small-sized companies are, without a doubt, the true foundational-core and engine from where

the country’s working population and economy growth comes from (National Economic

Council, 2011). The economic dynamic and growth of the America society, though not

necessarily dependant only on the small-sized businesses, however it is a major economic engine

for this great country.

As a research study, there are findings that this study uncovered that needs to be explored

further for future research explorations. Such future explorations will be discussed more in-

depth in the implications, limitations, and recommendations sections of this chapter. The

methodology used in this study was the interpretive phenomenological analysis (IPA). This

approach afforded this research study the opportunity to investigate the impact of the Sarbanes-

Oxley Act on small-sized publicly traded companies. The interpretive phenomenological

analysis approach is unique as a qualitative research approach, because of its ability to enable the

researcher to immerse himself in the lived experiences of the research participants. In addition to

that, IPA research also tends to see itself as a partner with the research participants because of it

ability to amplify the lived experiences of the research participants. As a conversational partner

in a research study, a term coined by Rubin and Rubin (2012) to describe the relationship that

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exists between the researcher (interviewer) and participants (interviewees); particularly the

respect that research studies affords the participants for their unique lived experiences and

stories. Rubin and Rubin (2012) stated that “The term conveys the respect the researcher has for

the interviewee’s experience and insights and emphasizes that interviewing is a joint process of

discovery” (p. 7).

At the time this Act was enacted and introduced to the business communities in 2002,

government (through SEC) laid out the reason why an Act like the Sarbanes-Oxley Act was

needed to function as an oversight mechanism (monitor/police) for the securities markets system

in America. In essence, they (SEC) believed that for the securities markets to be seen and

perceived as a transparent and honest place for investors to invest their money confidently, the

markets needed to be streamlined and tightened against fraudulent financial and accounting

reporting by shady and crooked executive officers of publicly traded companies to the Securities

and Exchange Commission (SEC).

The participants in this study were very accommodating and accessible; they gave this

study ample information and access to their time. They gave series of in-depth interview

responses to every single question that was asked of them. Throughout the interview process,

this research study was able to capture what the researcher felt were the core findings in the

research study:

The financial impact on the small-sized publicly traded companies

The impact on the relationship between companies and their local communities

The importance of the internal control management in publicly traded companies

The emergence of technology as the new method of communicating information

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The participants in this research study are homogenous as a group. Homogeneous in the

sense that the companies represented in this study were all small-sized publicly traded companies

and at the same time they were homogenous because they came from similar industrial base in

the economy; they are both in the technological and engineering industry. The homogeneity also

includes the fact that both of the participants in this research study were female professionals

with points of view that are similar in personal experiences vis-à-vis how the Act actually

impacts them individually (and company-wise). Utilizing the IPA approach for this research

study heightened what Smith et al. (2009) referred to as the essence of the IPA analytical

approach. They stated that “IPA is phenomenological in that it is concerned with exploring

experience in its own terms” (p. 1). The main fundamental tenet of the phenomenological

inquiry approach is its tendency to want to understand the consciousness (the lived experiences)

of the participants vis-à-vis their lived experiences as it relates to the phenomenon that is been

investigated.

The financial impact on the small-sized publicly traded companies

In this research project, the study investigated the impact of the Sarbanes-Oxley Act on

small-sized publicly traded companies, more so on the financial burdens that have impacted the

companies through the extraordinary requirements of the Act. In addition to that, this study also

looked at how this impact has shaped and transformed the operationalization of small-sized

publicly traded businesses in today’s business environments. According to the participants in

this study, both of them alluded to the fact that Sarbanes-Oxley Act has been a costly enterprise

to their companies’ bottomline. In one instance, one of the participants argued that the Sarbanes-

Oxley Act created an environment whereby company procedural processes required mountains

of paper work in order to comply with the requirements of the new Act. She stated that her

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company had to hire a new accounting firm to handle their internal control systems; the company

also had to increase personnel hours (which equals to more financial cost) due to added daily

responsibilities. The same participant also stated that extra expenses were incurred by her

company for purchasing extra computers for use in their internal auditing activities as required

by their auditors.

The other participant referenced that her company had introduced technological devices

in the process of delivering information to their investor communities. Though this was seen as

a positive (good) thing by many people, however, it was costly to introduce new technology in

an environment that was not used to utilizing those kinds of devices (not to mention the costs of

installing and updating the devices and the training of workers for the utilization and

maintenance of the technological devices). The second participant also stated that the main cost

of implementing the Sarbanes-Oxley Act was primarily in the form of required “procedural

processes”. These procedural processes are in a sense the cause of the financial burdens that

many of the small-sized publicly traded businesses are complaining about. This participant

revealed that in her company, there are more challenges in making sure that everyone do their

jobs properly and adhere to the demand that the procedural processes required.

The impact on the relationship between the companies and their local communities

Because of the controversial elements that came with the Sarbanes-Oxley Act and the

perception that people have of the Act’s impact on the relationship between the companies and

their local communities, this study wanted to investigate how the impact has affected the local

communities’ economic development vis-à-vis employment opportunities for the local people.

The idea behind the question was based on the perceived financial burdens that the Act put on

many of the small-sized companies; people thought that the impact of the Act might have

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affected the employment opportunities coming from those companies. The truth is that folks in

many of these local communities truly relies and depends on the economic stability and viability

of these small-sized businesses. Therefore, it is not too far fetched for some people to assume

that Sarbanes-Oxley Act may have had something to do with the employment opportunities, or

the lack of it, in their communities. In the interview, this research study pointedly posed the

question directly to the participants to try and find out if that was the case. In response to the

research question regarding the relationship between the companies and their local communities

and how Sarbanes-Oxley Act has impacted their company’s ability to create employment

opportunities for the local folks, the responses from both participants were an emphatic “NO.”

As far as they were concerned, they believed that the decision to hire new workers has to be

based on demand for their company’s products. The bottomline, according to the participants,

was that the internal and external demands should trigger the need for their companies to hire

new workers.

As a matter of fact one of the participants stated that her company did not need to hire

any new workers; per her response, she stated that all the extra procedural processes that her

company had to undertake were carried out and fulfilled by their existing workers and did not see

the need to hire new workers. The second participant echoed similar sentiments as well; she also

stated that her company did not hire any new workers because there was no demand for it. And

according to her, the results have to show the growth for the demand. However, she did say that

if there were needs or demands based on the result of growth, her company would naturally hire

new workers to assist in meeting the new demands. Nevertheless both participants stated that

they did not experience any direct or significant impact in their companies’ relationship with

their local communities

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The importance of the internal control management in publicly traded companies

One major element of the Sarbanes-Oxley Act is the requirement that publicly traded

companies create an internal control mechanism to manage the way their businesses are

administered. These requirements instructed that every important area of the publicly traded

company must be managed adequately and transparently; however, the participants stated that

the maintenance of the required internal control system can be very expensive and daunting. As

one of the participants put it, the importance of the internal control management has become

overwhelming to the point that it has taken over all the attention from other areas of the

company’s business operation. On top of that, according to the participant, the required process

has created an incredible amount of paper work for her company to manage.

In the same tone, the other participant spoke about the incremental hours that her

company has to spend on the internal control management. According to this participant, the

perception of people around her was that all these extra steps and expenses will amount to

noting, because it would not prevent what the Act was supposed to fight against, which was

fraud. The cost of complying with the internal control element of the Act was just too much and

it was basically the maintenance of the processes; the accounting department was overwhelmed;

the legal department was constantly evaluating liability concerns that the company could face if

they failed to comply with the Act; and the investor relations advisors were overwhelmed with

advising and delivering financial reports to all the company’s investor and business

communities. According to one of the participants, she believed that there were more challenges

just in making sure they did their jobs properly.

Both participants in this study stressed the importance that Sarbanes-Oxley Act placed on

the transparency of the internal control management in the operation of publicly traded

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companies. For instance, Ms. Holly told me in the interview that what the new Act did was to

create a new paradigm shift. She stated that as part of the requirement of the Act, she made it

mandatory that every key personnel in her organization attest to the performance of their offices

and departments. As such, what this paradigm shift created was a state of accountability among

the employees within her organization.

The emergence of technology as the new method of communicating information

One major accomplishment of the Sarbanes-Oxley Act on publicly traded companies in

America that many people actually acknowledged was the increased usage of technological

devices in the operationalization of publicly traded companies. As a compliance tool, Kaarst-

Brown & Kelly (2005) believes that technology can be the catalyst to the enhancement of

internal controls in publicly traded companies through the utilization of innovative technological

devices in the delivery and dissemination of information. According to one of the participants in

this study, Ms. Pat, she asserted that prior to the introduction of the Sarbanes-Oxley Act, many

executive officers of publicly traded companies were very reluctant and discouraging the

utilization of certain available technological devices as a means of delivering instantaneous

financial statements and reports to their constituencies.

According to the story Ms. Pat told this research study, she stated that in the early 1990s,

before the enactment and passage of the Sarbanes-Oxley Act, in order for her to communicate

with her company’s investor communities; she had to transmit two different information wires to

her company’s investors. The wire services were basically the transmission of revenues and

earnings reports of her company; both of these reports are wired out to the investor communities

to indicate and explain how well the company was doing on revenues and the other was to show

how well the company was doing on earnings.

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Even though Ms. Pat was not the greatest fan of the Sarbanes-Oxley Act, she did admit

and credited the Act as the catalyst for encouraging the mass utilization of technological devices

in the delivery and dissemination of important information to the business and investor

communities by publicly traded companies. The truth of the matter was that the introduction of

technological devices in the operationalization management of business activities has

transformed and revolutionized the way business transaction and information was conducted by

many of the publicly traded companies after the introduction of the Sarbanes-Oxley Act.

As a forewarned advice to companies that are thinking of outsourcing their IT functions,

Hall & Liedtka (2007) stressed the need for publicly traded companies to invest in acquiring IT

system so that they can meet the demand that the internal control system is going to eventually

place on their shoulders vis-à-vis the demands of the Act itself and the outside auditors who are

required to audit and attest to the reports generated from those companies. As a way to truly

understand the importance and benefits of investing in IT as oppose to outsourcing it to outside

entities, Hall & Liedtka (2007) stressed the potential risks that could come from outsourcing IT

functions to outside sources; they asserted that the risks could include the exposures of the

company’s internal control management system, the company’s financial reporting system, and

the company’s vulnerability (inability) to protect their share and stakeholders personal

information. Finally, Hall & Liedtka (2007) stated that “We conclude that SOX exacerbates

several preexisting risks of large-scale IT outsourcing and generates substantial new concerns”

(p. 96).

As a result of the findings this research study uncovered, this study felt the need to

amplify these findings because even though there have been some negative commentaries on the

impact of the Act, the fact remains that the initial impact were mostly felt by small-sized publicly

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traded companies prior to the subsequent interpretation of the law by the SEC. The bottomline is

that the attempt by the Congress of United States to create some kind of transparency in the

securities markets was a laudable and needed enterprise, especially for the people in the

investing communities. Therefore, regardless of how people looked at the Act, the Act has done

some good and one of them is the positive transitioning impact that technology has had in the

delivery and dissemination of information to the general population.

Study Implications

This research study has brought to the forefront some important implications that were

uncovered in the process of investigating the impact of the Sarbanes-Oxley Act on small-sized

companies. More importantly, these implications were uncovered through the lived experiences

of the research participants. From an academia stand point, the findings were intellectually

analyzable and interpretable for the scholastically trained audiences to understand. It is even

more compiling and practical for the regular audience to find the research results to be very

practical, easy to relate to and understandable. Among the important implications that were

revealed by the lived experiences of the participants are the following:

The direct and/or indirect impact of the Sarbanes-Oxley Act on the local communities

Even though both participants in this study stated that they did not have to hire new

workers to comply with the new Act; however, Ms. Holly told me in the interview that what her

company did was to add more responsibility on their existing workers thereby requiring them to

work extra hours and overtime in order for her company to comply with the Act. Though there

may not have been a direct and overtly observable impact on the communities, the implication

was that the workers who are required to work, extra hours and overtime, in a more restrictive

and tougher environment, could develop health related issues. Issues such as anxiety, stress,

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burn out, depression and the lack of quality time with their families. Naturally, the bottomline is

that this health and family-related impacts will ultimately affect the community as a whole.

The perceived impact of Sarbanes-Oxley Act on employment opportunities

Though both participants in this study stated that they did not have to hire new workers to

comply with the Act; however, as we all know as a society, whenever there is any new

regulatory Act on the activities of businesses, many businesses tend to hold-off on any

impending investment plans. Though the hold-off on investments are usually on a temporary

bases, the idea is for businesses to understand and gauge the consequences and/or the effects of

the new regulatory Act on their bottomline before they proceeds with their initial investment

plans. Nevertheless, the fact still remains that at the time of any introduction of new regulatory

Acts, many businesses usually hold-off on any new hiring of workers (or investments).

Therefore, with that understanding, this study believes that there is a good possibility that there

was an employment impacts on the local communities.

Technological devices as operational tools for publicly traded companies

Though, the general consensus among businesses when it comes to the increased

utilization of technological devices in the operation of publicly traded companies after the

introduction of the SOX Act was generally very positive. In addition to that, Hall & Liedtka

(2007) and Kaarst-Brown & Kelly (2005) also concurred with the participants’ assertion in this

study that supported and encouraged the utilization of technological devices as a means of

creating transparency and the delivery of vital information; however, as laudable and positive as

technology might have been to the delivery of information to the general public, the consequence

(implication) is that many small-sized publicly traded companies that were not used to working

with technology as a means of delivering information to the public will now end up investing

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heavily in the acquisition of technology for their businesses. The fact of the matter is that not

only are these companies going to incur new financial cost in the process of installing new

technological devices and equipment in their businesses, they will also end up training their

workers to handle and manage those new technology; something they were never used to doing

prior to the introduction of the Sarbanes-Oxley Act.

The uncovered implications also speak to the methodological approach utilized in this

research study. This study utilizes the qualitative methodology via the interpretive

phenomenological analysis (IPA) approach as the anchor of the investigation. As a

phenomenological approach, IPA advocated affording participants the space and freedom to

express themselves vis-à-vis the telling of their stories. By affording these participants the

opportunity to express themselves by telling their lived experience stories, this research study

was able to uncover some important information that will be useful and educational to the

audience of this study.

The essence of this Act as it was purported at the time it was introduced was to create an

environment of transparency and return some sense of confidence back to the investing

communities. There is no doubt that some part of the objective of the law has been

accomplished. Though, this research study will be the first to admit that it cannot generalize the

overall accomplishment of the Act; however, what it can do is concurred with the findings that it

uncovered through the lived experiences of the participants in this research study. There is no

doubt also that some of the findings that this research study uncovered needs to be researched

further for transferability purposes; however, it is worthwhile for this study to acknowledge that

the participants in this study are people who have lived and experienced the practicality of the

ramifications of the SOX Act as it relates to small-sized publicly traded businesses in America.

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Study Limitations:

As an IPA research study, it is important that this study, like any other study, understand

that it will not be in total control of the research process. Smith et al. (2009, p. 55) put it more

eloquently when they stated that “Before beginning any qualitative research project, it is wise to

consider that you will not be entirely in control of the process which follows, and that

occasionally you are likely to feel out of your depth.” In addition to that, this research study was

determined to uphold itself to the highest standard of analysis. As such, the analytical process in

this study adhered to the fundamental requirement of IPA.

Therefore, as an IPA research study, credibility and thoroughness in the analytical

process of the research data and findings were paramount. Rubin & Rubin (2012, p.226) stated

that thoroughness “means that you followed up different lines of inquiry, paying attention to

contradiction or unexpected findings, and that you examined alternative views,” and credibility

on the other hand speak to the fact that “you have presented convincing evidence for each

conclusion” (p. 226). For that reason and the reasons aforementioned, this research study

adhered to the fundamental core values of the interpretive phenomenological analysis approach

as advised by Smith et al. (2009). Smith et al. (2009) stated that “As with many other

approaches in qualitative psychology, the essence of IPA lies in its analytic focus. In IPA’s case,

that focus directs our analytic attention towards our participants’ attempts to make sense of their

experiences” (p. 79).

Therefore, the inferences that can be drawn from the findings in this research study

should also include the limitations that confronted it. The following are some of the limitations

that befell this research study:

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The first limitation, as far as this study was concerned was its inability to expand the

participants’ pool (sample size). Though this research study utilizes the IPA analytical approach

and IPA encouraged researches to utilize between 3 to 6 participants for the primary purpose of

amplifying the lived experiences of the participants (Smith et al., 2009). Creswell (2013) on the

other hand encouraged phenomenological research studies to utilize up to 10 people; however,

this research study was only able to utilize two participants for the study. Therefore, the pool of

participants in this research study was too small and did not allow for serious diverse

commentaries and data gathering.

The second limitation was in the area of cost benefit analysis of the Act on small-sized

publicly traded companies. Even though there were obvious and observable benefits that had

come from the introduction of the Sarbanes-Oxley Act in the securities markets, this study was

not able to truly quantify (in dollar terms) the costs and benefits ratio of the Act on small-sized

publicly traded companies in America. However, with that said, this study believes that even if

the cost outweighed the benefits, the observable effects of what the Act has done to transform

and enhance the way business transactions are conducted in America since the enactment and

introduction of the Act in 2002 and now (2016) is noting short of transformational; the benefits

are immeasurable.

The third limitation was the inability of this research study to dig deeper to understand

how the technological innovation that both participants alluded to, transformed the abilities of

publicly traded companies to deliver information to their constituencies and for their

constituencies to disseminate the information. Perhaps future research studies can examine the

extent to which technology has helped to level the playing field for every interested party to

compete fairly in the securities markets.

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The fourth limitation was that this study was not able to investigate to what extent the

internal control governance requirement of the publicly traded companies were tightened from

manipulation by the hands of unscrupulous criminal minded people. The participants did not see

anything that Sarbanes-Oxley Act, or any other Act for that matter, could do to truly stop any

one from going out and committing similar crime like the one that were committed in the early

2000s; perhaps future research studies should be conducted to investigate this particular area of

publicly traded companies operational function.

The fifth limitation was the fact that the participants in this study were primarily from

one state (actually, they were from one region of the state). In essence, this could pose some

contradictory difference if future research studies are conducted in a different state or region of

the country. This could create inconsistency based on geographical (regional) experiences

between this research study and future research studies.

Study Recommendations

Even though the findings and the lived experience stories in this research study were truly

incredible, this research study believes that further research studies need to be conducted in

couple of areas for future audiences to understand how the Act has truly impacted the

operationalization management of small-sized publicly traded companies in America. As far as

this research study was concerned, the following areas in the Sarbanes-Oxley Act are

recommended for further (future) studies:

Study how the Sarbanes-Oxley Act has transformed internal control governance of

publicly traded companies.

Study how technological devices have enhanced the operational management of publicly

traded companies

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Study how the Sarbanes-Oxley Act has either impacted or not impacted employment

opportunities in the local communities

Study how the introduction of the Sarbanes-Oxley Act has enhanced and strengthened the

effectiveness and functions of board memberships in today’s publicly traded companies

Even though this study provided some insights into how the Sarbanes-Oxley Act has

transformed the inner workings of many publicly traded companies in America, the fact still

remains that if it wasn’t for the legislations that were introduced and passed into law, this would

not have been possible. Though, this study is not advocating any additional Act, however, this

study does believe that congressional legislations can be a catalyst for change in our society and

business communities. Therefore, for future research studies on this matter, this study truly

recommends and believes that the best and most applicable methodology to use in future studies

in this area should be the qualitative methodology. As a methodology, qualitative methodology

has the ability to investigate problematic issues that can naturally be intricately tricky to

understand because of its humanistic tendency. However, because of its subjectivity and

interpersonal abilities, qualitative method is truly well-equipped to navigate any human

interactions better than any other research methodologies.

Study Reflection

As an interpretive phenomenological analysis research study, this study evaluated and

takes stock of its findings and all the nuances that came with it. The importance of

phenomenological research is its ability to examine and interpret the lived experiences of its

participants; at the same time, this approach also affords the researcher the opportunity to be

reflective of the lived experiences he/she has just been exposed to. As such, Smith et al. (2009)

saw IPA research as “systematically and attentively reflecting on everything lived experience,

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and with Husserl, we see that everyday experience can be either first-order activity or second-

order mental and affective responses to that activity – remembering, regretting, desiring, and so

forth” (p. 33). Therefore as a reflection of what this research study has uncovered, the goal of

this study is to shed more light on the lived experiences of the participants so that their stories

can be told and amplified.

As an interpretive qualitative research approach (IPA), Smith et al. (2009) asserted that

“IPA shares the views that human beings are sense-making creatures, and therefore the accounts

which participants provide will reflect their attempts to make sense of their experience” (p. 4).

As a qualitative approach, this approach pride itself in its self-reflection and the sensitivity it

gives to the lived experiences of the participants; more importantly, the intent of this research

study was not to undermine either the governments’ responsibility to protect the American

investors nor criticize the financially strong and powerful large publicly traded companies in

America. However, the intent of this research study was to investigate the impact of the

Sarbanes-Oxley Act on the vulnerable small-sized publicly traded businesses and the

communities they operate in. These companies, in many instances, did not have strong voices

that can represent their interests at the hall of power or appeal the implementation of the

egregious regulatory law that hurts them financially and economically.

Though this research study may be sympathetic with the position that small-sized

publicly traded companies find themselves in, the fact remains that the intention of this study

was not to undermine the governments’ efforts to try and protect the American investors against

and from the hands of the unscrupulous executive officers who are bent on defrauding the free

market system of the United States of America. As a scholar-practitioner researcher, it is the

responsibility of the researcher to conduct a bias-free and reflective-credible research. At the

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core of this research study is its tenet to examine how the Sarbanes-Oxley Act has impacted the

small-sized publicly traded businesses and the communities they operate in. Therefore, any bias

tendencies that might be misconstrued in the process of conducting this research study, Machi &

McEvoy (2012) argued that just because a researcher has a biased opinion or tendency that does

not necessarily mean that the researcher cannot conduct clean and bias-free research. However,

they also warned that “If these attachments (biases) remain embedded and unidentified, the

research will be severely compromised” (p.19). As a researcher, one has to be in a constant state

of self-reflection to make sure that the findings and the analytical processes are diligently

analyzed without any distortion. More importantly, qualitative researchers need to have a sense

of understanding and appreciation for the lived experiences of others (especially research

participants). Briscoe (2005) expressed this sentiment when she stated that

“It seems incontrovertible that differences do matter in the way that we interpret

our social world. And these differences lead to different representations of the

same social event and social actors. No one person has the horizons of meaning

adequate to fully interpret any social situation, but this is not necessarily a bad

thing; rather than being an argument for an exclusive representation of the other,

it is an argument for the most inclusive possible representation of any group. The

greater the number of interpretations, the fuller our understanding of others’

experiences will become” (Briscoe, 2005, p. 35).

Post Script Reflection

The twists and turns of this thesis (brief narrative of the researcher’s journey)

As a qualitative research study where subjectivity and interpersonal actions and

experiences interplay with everyday life nuances, it is very important that a thick personal

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reflective description be included in the narrative of the research study, so that the audience can

see for themselves the journey that the research study has gone through. This interpretive

phenomenological analysis research study believes that it is important that every research study

give a detail account of the mountains each study has climbed to get to their individual

destinations. For a research study to be authentic and credible, telling a narrative of the journey

should be part of the research study’s narration. The truth of the matter is that life is noting, but

what we make of it as participants in this experiential life journey; it is up to each research study

to tell their stories and allow the audience to partake in the journey with them. Therefore, as a

phenomenological research study, this study has had its twists and turns.

The genesis of this research study started when the researcher took his first research class

(Fundamental of research) to begin the process and navigation of his thesis focus. As a doctoral

student who was about to embark on selecting a research topic for his thesis, the researcher

pondered on many ideas and issues that were current and important at the time. However, he is

someone who has worked majority of his life; so as a researcher, he had this idea of focusing his

research project on something to do with business issues; issues that were common to businesses

and especially issues that affected the vulnerable segment of the economy - the small-sized

businesses. So when the time came for the researcher to decide on what he wanted to focus his

research on, the decision was fairly easy to make. The researcher also had guidance from his

professor at the time, Dr. Carol Young, who was able to help with the navigation of the nuances

that comes with picking a research topic.

As a topic, the researcher decided to investigate the impact of a federal regulatory Act

called the Sarbanes-Oxley Act. This Act originated from the debacles of the early 2000s, the

widely discussed and publicized financial collapses of many multi-national corporations.

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Initially the Act was generally believed to be a law that would help open up and streamlined the

securities markets. However, after the introduction of the Act, it became very apparent to the

business communities that the Act was not only enacted to create transparency in the securities

markets, but it was also known to be the strictest and most stringent Act that has ever been

introduced in the U.S. The requirements of the Act were extremely demanding and challenging

for many companies, especially for the small-sized publicly traded companies in the country. As

a result, this researcher felt that it was very important to investigate the impact of the Act on

small-sized businesses.

As a journey, this research study found itself in many transitional junctions. First, there

was the decision the researcher had to make to pick a catchy and relatable title name for the

research study. The process of picking a title name was intriguing; however, it was also very

tedious. Introspectively, looking back at the journey of this research study, the researcher

believes that the series of initial decisions he made, probably cemented the conceptualization of

the research study (the born of a new research study). However, after going through the ups and

downs of picking a title for the research study, the name was changed, again, for something

slightly different to accentuate the catchiness that the study was looking for to capture and attract

the attention of the audiences.

After going through the different research classes to help prepare doctoral students for the

beginning of their thesis research project, this researcher was lucky to be assigned to a Thesis

Advisor (Dr. Karen Reiss Medwed) who is truly knowledgeable and interested in guiding this

research study to its full potential. However, to get to that point, Dr. Medwed believed that the

researcher needed to find a way to connect the small-sized businesses with their local

communities. This idea was a great idea because it afforded the research study the opportunity

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to investigate any possible impact of the Sarbanes-Oxley Act on the relationship between small-

sized publicly traded businesses and the local communities they operates in.

What this idea did was to give additional value and credibility to the research study.

However, there was one thing that the researcher was not cognizant of or familiar with – the

tumultuous journey of finding and/or eliciting participants for the research study. The researcher

did not understand all the intricacies involved in eliciting participants to a research study.

Immediately after the IRB approval was confirmed, the research study sent out numerous

invitation letters to prospective participants who met the criterion that was originally set out by

the research study. But unfortunately, there was no response; actually there was one response

that came back refusing the invitation. Other than the rejection response, no one ever bothered to

respond. After awhile frustration and disappointments set in, the researcher came to the

conclusion that he had to involve his Advisor, Dr. Medwed, of the research study stand-still. The

decision to inform and involve the Advisor in the deliberation for what to do next, truly help to

create new “out-of-the-box” paradigms; something that was not discussed before. At that point,

different ideas were discussed; eventually, the study settled on changing the criterion slightly to

reflect on the new dynamics of the research study. However, for a short while, the new idea did

not change the circumstances of the research study, until a faithful day when the researcher, as he

always does everyday, got on the telephone to call as many publicly traded companies as he

could, to solicit for their participation in the research study. After making over fifty calls, it

came down to a telephone call he made to a company that was answered by the front-office Rep.

The researcher told the Rep. what he was calling for hoping that someone in the firm would be

willing to speak with him for sixty to ninety minutes on the impact of the Sarbanes-Oxley Act on

small-sized publicly traded companies and the local communities they operates in.

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Long and behold, the next day the researcher received a call from the company’s investor

relations advisor who asked to talk to the researcher by name. The investor relations advisor was

very gracious and kind; she agreed to participate in the research study and a date was set. On the

interview day, everything went incredibly well and her responses were straight to point and

concise. After the interview, the participant surprised the researcher by promising to talk with

some of her friends and colleagues to see if they would be willing to partake in the research

study. As a matter of fact, the participant kept her promise and this research study was able to

interview additional participant for this research project. As a phenomenological research study,

this study is truly grateful and appreciative for all the people involved in the research journey.

Conclusion

The quality of the findings in this research study is extremely important to the credibility

of this study. More importantly, the analytical tool utilized by this research study to analyze the

findings was also a very important tool in the analytical process. As a qualitative research

approach, this research study utilizes the interpretive phenomenological analysis (IPA) approach

as a tool for analyzing the findings that this research study uncovered. Furthermore, interpretive

phenomenological analysis (IPA) approach created a standard that makes it unique and

exceptional in analyzing research findings. As a standard of excellence in a phenomenological

research study, Creswell (2013, p. 260) stated that the “standard that I would use to assess the

quality of a phenomenology would be:

Does the author convey an understanding of the philosophical tenets of phenomenology?

Does the author have a clear “phenomenon” to study that is articulated in a concise way?

Does the author use procedures of data analysis in phenomenology, such as the

procedures recommended by Moustakas (1994) or van Manen (1990)?

153

Does the author convey the overall essence of the experience of the participants? Does

this essence include a description of the experience and the context in which it occurred?

Is the author reflective throughout the study?”

For a qualitative research study to be seen as quality-oriented, it is important that the

research study, as Polkinghorne (1989) eloquently put it, the research findings must be “valid”

(Cited in Creswell, 2013). As far as Polkinghorne (1989, p. 57; cited in Creswell, 2013) was

concerned with regard to validating the quality of a research study, he felt that he had to ask the

following question; “Does the general structural description provide an accurate portrait of the

common features and structural connection that are manifest in the example collected?”

Therefore, this research conclusion shall discuss the five bullet points that Creswell (2013) used

as a standard for a quality phenomenological research study.

Does the author convey an understanding of the philosophical tenets of phenomenology?

Absolutely, as an interpretive phenomenological analysis research study, the researcher

(author) of this study was very attentive and respectful of the lived experience stories that the

participants were willing to share with this study. Not for once did the researcher underestimated

or undermined the authentication and sincerity of all the participants involved in this research

study. Each participant was given adequate time and space to read-through the interview

questions that this research study wanted to ask them vis-a-vis their experience and expertise on

the subject-matter (Sarbanes-Oxley Act). More importantly, this research study intended for the

participants to also have a reflective time to gather themselves together so that they could have

time to recollect their memories and lived experience stories in relation to the phenomenon that

the interview was aiming to investigate. It is without a doubt that the essence and integrity of

this research study truly depended on its ability to adhere to the principles and philosophical

154

tenets of the phenomenological research practices. Smith et al. (2009) believed that even though

phenomenologists tend to have different interests with respect to what emphasis they wanted to

articulate; however, the bottomline is that “they have all tended to share a particular interest in

thinking about what they experience of being human is like, in all of its various aspects, but

especially in terms of the things which matter to us, and which constitute our lived world”

(Smith et al., 2009, p. 11).

Does the author have a clear “phenomenon” to study that is articulated in a concise way?

Again, absolutely yes; this research study articulated what the focus of this study was

primarily about. From the very beginning, this study articulated that it wanted to investigate the

impact of the 2002 federal regulatory Act called the Sarbanes-Oxley Act vis-à-vis how it

impacted the abilities of small-sized publicly traded companies and the communities they operate

in. The primary focus was never in any doubt about the essence of this study. More importantly,

again, it was clearly and concisely stated.

Does the author use procedures of data analysis in phenomenology, such as the procedures

recommended by Moustakas (1994) or van Manen (1990)?

Absolutely; this research study clearly adhered to both Moustakas (1994) and van Manen

(1990) fundamental beliefs that a phenomenological researcher should be attentive and allow the

participants to tell their stories without any input from any quarters, especially from the

researcher (bracketing himself/herself away from the stories that are being told). Moustakas

(1994, p. 85) stated that researchers should “set aside our prejudgments, biases, and

preconceived ideas about things [that are revealed to us as researchers]” (Cited in Creswell,

2013). In addition to that, he also added that “The challenge of the Epoche is to be transparent to

ourselves, to allow whatever is before us in consciousness to disclose itself so that we may see

155

with new eyes in a naive and completely open manner” (Moustakas, 1994, p. 86; cited in

Creswell, 2013). As such, Moustakas (1994) advised that in order for the researcher to get the

essence of the lived experience stories of the participant, it is important that the researcher be

open-minded so that he/she can receive the underlying dynamic experiences that the participants

were expressing. On the other hand, van Manen (1990) did not just see phenomenology as a

descriptive mechanism, but also as an interpretive devise that researchers can use as a tool to

interpret what the lived experiences of the participants truly means (Creswell, 2013). With these

two fundamental foundations to what is expected of a phenomenological research, without a

doubt, this research study completely and utterly adhered to the prescribed procedural processes.

Does the author convey the overall essence of the experience of the participants? Does this

essence include a description of the experience and the context in which it occurred?

Absolutely, this research study was very transparent with every aspect of the research

process. As a phenomenological research study, this study gave full background information of

the participants, first for credibility and authenticity reasons, but secondly for transparency and

full disclosure purposes. From the first participant to the last participant, this research study

gave full and adequate information to the readers to make informed decision as to the

qualification of the participants’ vis-à-vis their expertise, knowledge, and lived experiences as it

relates to the phenomenon that this research study was investigating. This research study was

more than transparent in the phenomenon it was trying to investigate, and also of the participants

who were invited to participate in the study. Every aspect of this study was very respectful of

the participants’ lived experiences; more importantly, this study made it very transparent and

undiluted for all the audiences to see and make their own decision.

156

Is the author reflective throughout the study?”

Absolutely yes; as part of the research process, it is essential that the research study

(researcher) reflect on the entire process that this research study has gone through. As a matter

of fact, to make this process a little bit more transparent and authentic, this research study took it

upon itself to give a detail “journey-path” that this research study went through to arrive at where

it is today. Therefore, as a reflective process, this research study (and the researcher) has gone

through a rigorous reflective process, so that every angle and area of the research study was truly

deliberated and vented; as such reflective and deliberated decisions were made in the process.

Smith et al. (2009, p. 3) asserted that “When people are engaged with ‘an experience’ of

something major in their lives, they begin to reflect on the significance of what is happening and

IPA research aims to engage with these reflections.”

Finally, as a qualitative research study; this IPA study was able to contribute to the

scholar-practitioner core foundation of this program by utilizing the subjectivity (humanistic)

aspect of the qualitative methodology as a connection to examining the practical (lived)

experiences of the research participants with a problem of practice. Furthermore, this research

study also demonstrated through it findings that adequate and thoughtful deliberations are needed

(both in the congress of the United States and the general population) before any restrictive and

impactful federal regulatory Act are proposed and enacted in the future. Ironically, it is

fascinating to observe how passionate and quick the government, through the legislative and

executive branches, are to enact new and restrictive regulatory Act on businesses. Even though

these are the same government and politicians who constantly laments on the decline of the

middle class population in the country vis-à-vis the unfortunate rate of unemployment among the

middle class population in the country; yet they still proposed the enactment of new laws that can

157

cripple and burden the very source that could help do something about the growth in both the

nation’s economy and the middle class population that they constantly lament on – the small-

sized businesses.

Additionally, through the interviews conducted in this research study, empirical evidence

were uncovered that provides direct practical and lived experience perspectives to support the

general perception that the Sarbanes-Oxley Act has had tremendous (financial) burdens on the

small-sized publicly traded companies since its introduction to the business communities in

2002. As a final word, this research study has been very thorough in the way it analytical

processes were conducted; therefore the hope of this research study was that readers (audiences)

will find the information in this study easy to understand and disseminate. This study also hopes

that the readers will find some important data to take-away from the findings in this study.

158

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Appendices

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Appendix D Northeastern University

360 Huntington Avenue, Boston, Massachusetts 02115

The Semi-Structured Interview Protocol

The Project (Title): The impact of the Sarbanes-Oxley Act (SOX) on the small-sized publicly traded companies and

their communities

Institution: Northeastern University; 360 Huntington Avenue, Boston, Massachusetts 02115

Time of Interview:

Date:

Place:

Interviewer: Abayomi O. Alase

Interviewee:

The purpose of this research study is to examine the impact of the Sarbanes-Oxley Act on the small-sized publicly

traded companies in America. This study intends to interview three or four current or former officers of small-sized

publicly traded companies to understand their “lived experience” stories vis-à-vis the impact of the Sarbanes-Oxley

Act on their businesses. As for the information collected; this research study will adhere to the strictest

confidentiality procedure to safeguard the participants’ identities. The first interview (primary) duration will not exceed ninety minutes (however, the second “following-up” interview will not exceed sixty minutes – if required).

[Have the interviewee read and sign the informed consent form.]

[Turn on the tape recorder with the permission of the interviewee]

Primary questions:

1. How do current or former officers of small-sized publicly traded companies describe their experiences of

the Sarbanes-Oxley Act on their businesses and communities?

2. How do current or former officers of small-sized publicly traded companies in America perceive the impact

of the SOX Act on their businesses and the communities they operate in?

[Thank the individuals for their cooperation and participation in this interview. Assure them of the strictest

confidentiality of their responses]

The Interview Script (For one-on-one, over-the-phone and online visual interview formats)

Semi-Structured Interview Protocol Form

Student Semi-Structured Interview Protocol

Institution: Northeastern University .

Research Study Title: The Impact of the Sarbanes-Oxley Act (SOX) On the Small-Sized Publicly Traded

Companies and Their Communities .

Interviewee (Name): .

Interviewer: Abayomi O. Alase (Researcher) .

Impact of the Sarbanes-Oxley Act Interviews

Beginning of the interview

Interviewer: Okay, good morning, my name is Abayomi O. Alase and I have with me Ms. C an officer with -------, a small-sized

publicly traded company with approximately $----Million in market capitalization.

Interviewer: Ms. C you have been selected to speak with me today because you have been identified as an officer of a small-sized

publicly traded company and someone who has a great deal of experience to share about the impact of the

Sarbanes-Oxley Act on your business and community.

This research study focuses on the “lived experiences” of officer of small-sized publicly traded companies’ vis-à-vis the impact of the Sarbanes-Oxley Act on the operationization of their businesses and the communities they operate

in. Through this study, I hope to gain more insight into the true impact of the Act and how small-sized businesses

174

have transitioned themselves in this restrictive regulatory business environment. Hopefully, this study will provide stakeholders with the opportunity to have constructive and intellectual debates on the viability and usefulness of the

Act in today’s business environment.

Because your responses are important to this research study and also because I want to make sure I capture

everything you say, I would like to audio tape our conversation today for accuracy. Do I have your permission to

record this interview?

Interviewee: -----------

Interviewer: Great, thank you, if you don’t mind, I may have to ask you the same question again, just to get your authorization

before I actually proceed with the recording.

Interviewee: ----------

Interviewer: With that said, I am also going to be taking some hand written notes for added reference. I can assure you that all

responses will be confidential and only a pseudonym will be used when quoting from the transcripts. I will be the

only person (other than the Principal Investigator, Dr. Medwed) who will be privy to the contents in the tapes which will eventually be destroyed after they have been transcribed. To meet our human subjects’ requirements at the

Northeastern University, you are sent a copy of an “Unsigned Consent” document that spelt out the essence of this

research study. Essentially, this document states that: (1) all information will be held confidential, (2) your

participation is voluntary and you may stop at any time if you feel uncomfortable, and (3) this research study do not

intend to inflict any harm on you as a participant. Do you have any questions about the interview process or how

your data will be used?

Interviewee: ------------

Interviewer: Great, thank you. Ms. C, I have planned this interview to last no longer than 90 minutes. During this time, I have

two primary questions that I would like to cover. However, additional questions may be asked in response to your

answers to my two primary questions. If time begins to run short, it may be necessary for me to interrupt you in

order to push ahead and complete this line of questioning. Do you have any questions at this time?

Interviewee: -------------

Interviewer: Thank you. Now, I shall begin with my questions, but before I do; may I have your permission, again, to record this

interview conversation?

Interviewee: --------------

Interviewer: Thank you. If I may; how long have you been an officer of this company?

Interviewee: --------------

Interviewer: What does being an officer in company mean to you - For example:

Can you describe to me what does your professional work or duties in this company entail and how do you adjust to

the expectations of the position?

Interviewee: ---------------

Interviewer:

175

Can you describe what got you interested in this position?

Interviewee: ---------------

Interviewer: One of the things this research is interested in is learning about the impact of the Sarbanes-Oxley on small-sized

publicly traded businesses and their communities. More importantly, how this Act has affected small-sized publicly

traded companies and their ability to operationally manage their affairs. In addition to that, this research study will

also like to know how this Act has impacted the relationship between the small-sized publicly traded company and

its’ local community vis-à-vis the creation of employment opportunities for the local residents. In order to ask these

questions, I am going to ask you to please describe to me, in your own words (“your lived experiences”), i.e., what

you have encountered in the process of complying with the requirements of this Act in your company. Your

experiences and perceptions at various times of the processes are very important. Ms. C, your responses may

include both academic and non-academic examples. However, if you mention other people, such as their actual

names or events in your responses, those actual names and events will be assigned pseudonyms. With all that said;

my first primary question is:

How do officers of small-sized publicly traded companies describe their experiences of the Sarbanes-Oxley Act on

their businesses?

Interviewee: --------------

Interviewer: Thank you for your candid response. My second question is:

How do officers of small-sized publicly traded companies perceive the impact of the SOX Act on the communities

they operate in?

Interviewee: ---------------

Interviewer: As a quick follow-up, in your capacity as a business leader and an investor relations expert, can you recall at any

time when a regulatory Act has broadly impacted small-sized publicly traded companies in America as much as this

Act has done?

Interviewee: ---------------

Interviewer: Thank you so much Ms. C for your responses to my questions. If I may ask Ms. C, do you have any

question/questions for me that you want to ask or know?

Interviewee: ---------------

Interviewer: Ms. C, I would like to thank you on behave of my university, my Principal Investigator, and myself for this interview

opportunity. I thank you for taking the time out of your busy schedule to sit down with me and have this

conversation. I truly appreciate your participation in this research study. And like I told you before, I will make

sure that you have a copy of the transcript of this interview; and I will also make sure that this interview is kept in

the strictest of confidence. Additionally, this interview will be protected from any outside source getting to anything

we have discussed here today. Thank you, again, Ms. C. That concludes this interview.

Interviewee: ----------------

Interviewer: You have a nice day

End of interview

176

Appendix E

Northeastern University

360 Huntington Avenue, Boston, Massachusetts 02115

NIH Human Subject Training Certificate

Certificate of Completion

The National Institutes of Health (NIH) Office of Extramural Research

certifies that Abayomi Samuel-Alase successfully completed the NIH

Web-based training course “Protecting Human Research Participants”.

Date of completion: 09/15/2013

Certification Number: 1268233

177

Terms and definitions

10K and 10Q Reports – Corporate Financial Statement Reports

ACA – Affordable Care Act

AeA - American Electronic Association

AICPA - American Institute of Certified Public Accountants

CBO - Congressional Budget Office

CFPB - Consumer Financial Protection Bureau

CIO – Chief Information Officer

CPA – Certified Public Accountant

Dodd-Frank Act – Federal Regulatory Act

FDIC – Federal Deposit Insurance Corporation

FSOC - Financial Stability Oversight Council

GAO – Government Accountability Office

GDP - Gross Domestic Product

IPA – Interpretive Phenomenology Approach

IT – Information Technology

Obamacare – Alternative name for ACA

OCC - Office of the Comptroller of the Currency

NIRI – National Investor Relations Institute

PCAOB - Public Company Accounting Oversight Board

SARBOX - Sarbanes-Oxley Act

SEC – Securities and Exchange Commission

SOX Act – Sarbanes-Oxley Act