The costs and benefits of the Sarbanes‐Oxley Act of 2002 ( SOX ) have been oft‐debated since the inception of the Act. Much of the extant literature has assessed the costs and benefits of SOX to publicly traded companies. We focus on the costs of SOX compliance for private firms wanting to exit the private market via either an acquisition by a public firm or an IPO . Consistent with our predictions we establish two principal findings. First, SOX appears to have shifted the preferences of private firms from going public to exiting the private market via acquisition by a public acquirer. Second, private target deal multiples are increasing in variables that proxy for a private target's level of pre‐acquisition SOX compliance. These findings suggest that SOX ‐related costs have both restricted the action space of possible exit strategies for private firms and led to lower deal multiples for those private acquisition targets that are less likely to be SOX compliant prior to acquisition.

Prior research documents a negative link between risk and executive holding of stock, but a corresponding positive link for options. We find a similar negative relation for non-executive holding of stock. Our finding is consistent with the view that non-executives not only face significant incentives to reduce risk when they hold stock, but they are also able to affect corporate risk. While endogeneity cannot be ruled out fully, the results of a battery of tests suggest that it plays a limited role. A second robust result is that the documented relation becomes more negative as option-based executive compensation increases. Overall, corporate risk is related to the incentives created by stock and options held by both executives and non-executives, as well as interactions among those incentives.