Purpose Motivated by the findings of Bhabra and Hossain (2017) that highlight an improvement in US market performance in the post-Sarbanes–Oxley (SOX) period, this paper aims to investigate how this change varies with the methods of payment used for the deals. Design/methodology/approach Deductive in nature and using an event study approach, this paper uses a sample of 675 deals between 1999 and 2006 to test three research hypotheses in a pre-post setting. Findings Results show that at the aggregate level, there is a significant improvement in the market performance of US acquirers around the announcement day in the aftermath of the passage of SOX 2002. Considered separately, both US stock acquirers and cash acquirers did not experience any significant improvement in market performance in the post-Sarbanes–Oxley period. These results are robust to controlling for governance, firm and deal variables, as well as industry and year fixed effects. Research limitations/implications Exploratory in nature, the results are to be interpreted in light of the sample size and the period under investigation. Practical implications The results provide evidence for regulators and legislators on the contribution of SOX 2002 to curbing managerial misconduct. Significant improvement in the market performance also signals more confidence in managerial decisions and a reduction in agency problems. The insignificant change in stock acquirers’ market performance can be an indication that policymakers should exert more efforts to improve shareholders' confidence in the quality of disclosure. Originality/value This investigation provides unique insights on whether SOX has been effective in mitigating mispricing concerns associated with stock-financed acquisitions and whether it was effective in moderating the governance mechanism associated with cash-financed acquisitions.

Financial markets play a vital role in shaping corporate behaviour, impacting corporate financial decisions ranging from investment and mergers/acquisitions to payout policies and management renumeration. Financial markets, however, are prone to irrational sentiments to trade, driving prices away from fundamental values, with the potential to distort corporate decisions and, hence, corporate efficiency. It is important, therefore, to examine the extent to which regulatory reforms help mitigate the influence of irrationality in financial markets. To this end, we examine the consequences of the mandatory adoption of International Financial Reporting Standards (IFRS) in Europe through the behavioural lens of investor sentiment. In country‐level analyses, we find the impact of irrational sentiment on stock markets to have significantly diminished post‐IFRS. In global pooled analyses, we compare the change in the sentiment–return relationship in countries adopting IFRS with the change in a set of non‐adopting countries to account for stock market trends: weakening of the impact of irrational sentiment on stock prices is greater in IFRS‐adopting countries. Results are robust to a battery of alternative tests and explanations. We provide strong support, therefore, for the success of IFRS in its aim of improving market efficiency, with important implications for corporate management.