Market Reaction to Events Surrounding the Sarbanes‐Oxley Act of 2002 and Earnings Management
Year: 2008
Type: article
Abstract: The Sarbanes-Oxley Act of 2002 (SOX) is the most important legislation affecting corporate financial reporting enacted in the United States since the 1930s. Its purpose is to improve the accuracy and reliability of accounting information reported to investors. We examine stock price reactions to legislative events surrounding SOX, and focus on whether such stock price effects are related cross-sectionally to the extent firms had managed their earnings. Our univariate results indicate significantly positive abnormal stock returns associated with SOX events, and our primary analyses reveal considerable evidence of a positive relation between SOX event stock returns and extent of earnings management. These results are consistent with investors anticipating that SOX would constrain earnings management and enhance the quality of financial statement information more, the more firms had managed their earnings.
Source: The Journal of Law and Economics
DOI: 10.1086/588597
Authors: Haidan Li, Morton Pincus, Sonja Olhoft Rego
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3125936596