Economic consequences of the Sarbanes–Oxley Act of 2002

Economic consequences of the Sarbanes–Oxley Act of 2002 This paper investigates the economic consequences of the Sarbanes–Oxley Act (SOX) by examining market reactions to related legislative events. Using concurrent stock returns of non-U.S.-traded foreign firms to estimate normal U.S. returns, I find that U.S. firms experienced a statistically significant negative cumulative abnormal return around key SOX events. I then examine the cross-sectional variation of U.S. firms’ returns around these events. Regression results are consistent with the non-audit services and governance provisions imposing net costs. Additional tests show that deferring the compliance of Section 404, which mandates an internal control test, resulted in significant cost savings for non-accelerated filers. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Economic consequences of the Sarbanes–Oxley Act of 2002

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Publisher
Elsevier
Copyright
Copyright © 2007 Elsevier B.V.
ISSN
0165-4101
D.O.I.
10.1016/j.jacceco.2007.02.002
Publisher site
See Article on Publisher Site

Abstract

This paper investigates the economic consequences of the Sarbanes–Oxley Act (SOX) by examining market reactions to related legislative events. Using concurrent stock returns of non-U.S.-traded foreign firms to estimate normal U.S. returns, I find that U.S. firms experienced a statistically significant negative cumulative abnormal return around key SOX events. I then examine the cross-sectional variation of U.S. firms’ returns around these events. Regression results are consistent with the non-audit services and governance provisions imposing net costs. Additional tests show that deferring the compliance of Section 404, which mandates an internal control test, resulted in significant cost savings for non-accelerated filers.

Journal

Journal of Accounting and EconomicsElsevier

Published: Sep 1, 2007

References

  • Economic consequences of SEC disclosure regulation: evidence from the OTC bulletin board
    Bushee, B.J.; Leuz, C.
  • Market efficiency in real time
    Busse, J.A.; Green, T.C.
  • Shredded reputation: the cost of audit failure
    Chaney, P.K.; Philipich, K.L.
  • Governance mechanisms and equity prices
    Cremers, K.J.M.; Nair, V.
  • Does the market value financial expertise on Audit Committees of Boards of Directors?
    DeFond, M.; Hann, R.N.; Hu, X.
  • Economic consequences of regulated changes in disclosure: the case of executive compensation
    Lo, K.
  • Auditor resignations: clientele effects and legal liability
    Shu, S.Z.

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