Articlegreen2010

The Effect of SOX Section 404: Costs, Earnings Quality, and Stock Prices

502 citations0/0 files storedThe Journal of Finance

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

ABSTRACT This paper exploits a natural quasi‐experiment to isolate the effects that were uniquely due to the Sarbanes–Oxley Act (SOX): U.S. firms with a public float under $75 million could delay Section 404 compliance, and foreign firms under $700 million could delay the auditor's attestation requirement. As designed, Section 404 led to conservative reported earnings, but also imposed real costs. On net, SOX compliance reduced the market value of small firms.

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References

1993Common risk factors in the returns on stocks and bonds 1993Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency 1991Earnings Management During Import Relief Investigations 2005Performance matched discretionary accrual measures 2005The economic implications of corporate financial reporting 1997Event Studies in Economics and Finance 1997Earnings management to avoid earnings decreases and losses 2008Real and Accrual-Based Earnings Management in the Pre- and Post-Sarbanes-Oxley Periods

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