Research paper SarbanesOxley Act of 2002 and DoddFrank law on banking industry - Essay Example

It encouraged full disclosure of information to enable citizens to evaluate the worth of the firm before investing in it. The Dodd-Frank law also seeks to tighten regulation on credit rating agencies (Simon, 1989). Whether this was achieved or not has been a subject of debate around many corners. To assess the effects of the legislation, this paper will look at the wealth effects that surround the passage of the Act. The investors and the analysts will assess the benefits that this act has brought to their wealth status and whether or not it brought a significant difference since its enacting.

If they determine that there are changes due to act and that the act is having positive effects in the investment business then they will assess it positively if otherwise they will give it a negative assessment. However, for the purposes of research, this paper will assume that the share prices of the firms that were expected to incur greater costs during compliance were negatively affected by the Act. This is because their share prices fell and it has been a challenge to bring them up. The paper will assume this position following the hype that followed the enactment of the Act especially in the media.

The media popularized the negative effects of this legislation to the share prices of firms (Bloomfield, 2005). To assess the effects of this legislation, the paper will consider several studies that focus on the financial impacts brought about by disclosure of financial information then engage in an independent discussion on the same (DeFond, 2004). Previous studies indicate that financial disclosure by firms is very important to the shareholders. The shareholders need this kind of information in order to make decisions on which stocks they would invest in.

It also helps the analyst by giving them the facts they can use in advising their clients. Being open to the public also helps the firm well manage its expectations. However, how the disclosure impacts on the