1 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 2 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. 3 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. 4 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. 5 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. 6 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 7 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 8 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 9 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