SOX and investor over-confidence

Yesterday I pointed to a post about a survey showing that executives still thought that SOX was burdensome yet had done nothing to improve ethical standards. Dealbreaker’s John Carney points to the same survey, and adds that it indicates executives nevertheless thought SOX had improved investor confidence. Carney says:

if the executives are right, this means investors have been lulled into a false sense of confidence by the law. We've said before that the ideology of Investor Confidence is dangerous: it can lead to policies intended to instill an unwarranted confidence in the stock market. This divergence between effect on ethics and effect on confidence is good reminder that you can't spell "Investor Confidence" with a "con." Who says you can't put lipstick on a pig?

I made a similar observation six years ago in my initial article about SOX (SSRN version).  In the final version, (28 J. Corp. L. at 31-32) I point out that (footnotes omitted)

even if lack of confidence is keeping investors out of the market, it is not clear that regulation should bring them back in unless it actually justifies greater confidence. The Sarbanes-Oxley Act may justify little confidence because it makes only incremental changes in prior law. Corporate frauds arguably were facilitated because there was too much investor confidence, as indicated by investors’ willingness to ignore what the market knew about questionable accounting and to not question firms’ extravagant claims about unproven business plans. Overselling regulation might perpetuate this misjudgment and mislead investors back into the same complacency that contributed to the recent frauds.