Dissertations, Theses and Capstone Projects

Date of Award

Spring 2013

Degree Type


Degree Name

Doctor of Business Administration (DBA)



First Advisor

Dr. Lance E. Brouthers

Second Advisor

Dr. Scott M. Widmier

Third Advisor

Dr. Dana Hermanson


These essays examine the impact of the Sarbanes-Oxley Act on small banks (Essay #1) and small businesses (Essay #2). Sarbanes-Oxley (SOX), passed in 2002 by the Congress of the United States, was intended to enhance the security of the public shareholder through extensive reporting and compliance programs. As some compliance costs are fixed, the costs of SOX would logically fall disproportionately upon smaller banks, possibly producing unintended consequences. These costs if significant may impact the bank’s choice of strategy. How then can the bank respond? The expectation of a negative impact on small banks is well documented, and consistent with this expectation I found that small public banks’ ratio of expense post Sox increased more than that of large public banks. However pretax earnings for small listed banks post SOX compared to pre SOX was indistinguishable from that of large banks, suggestive of coping strategies. However, I found that fewer small banks elected public reporting status post SOX, reflective of the higher perceived cost of public market membership and that a significant number of financial institutions elected to exit the public securities market. Turning to the impact on small businesses, while small banks had reduced capital accumulation post SOX on a scale similar to that of large banks, the business lending of small listed banks was significantly higher than that of large banks. Small businesses, which depend significantly upon small banks for their lending, are thus not potentially constrained in their growth efforts in the post SOX period, at least with respect to listed banks. I find, in contrast with the direct effect of the costs of SOX, a significant impact upon small banks making a capital market decision. The reduction in the number of banks electing public market membership is a shift in the small banking growth model and may suggest a future weakening in small banking support for small business. This research shows how the initial perception of legislation impacts capital market decisions and may create a long-term resource constraint downstream for dependent small companies, thus suggesting a potential future framework for the evaluation of intended regulation.