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Managerial Entrenchment and Value-Relevance of Earnings During the Pre- and Post- Sarbanes Oxley Periods


Anthony C. Ng


Hong Kong Polytechnic University

Ferdinand A. Gul


Monash University Sunway Campus

Yaw M. Mensah


Rutgers Business School - Newark & New Brunswick

September 2007


Abstract:     
This study examines the effect of the passing of Sarbanes-Oxley Act (SOX) of 2002 as well as managerial entrenchment characteristics of corporations on the value-relevance of earnings. Our sample of observations is partitioned into three sub-periods: the Pre-Scandal (Pre-SCA) period, the Enron scandal (SCA) period, and the period after the passage of the Sarbanes-Oxley Act (Post-SOX). We find that the value-relevance of earnings is significantly different for the three sub-periods. Using the existence of anti-managerial-entrenchment mechanisms as a measure of good corporate governance, we find that these measures have a positive impact on the value-relevance of earnings only during the SCA period. Furthermore, the positive impact only applies to firms that engaged in income-decreasing earnings managements during the prior year. We conclude that, from the standpoint of investors, there appears to be a substitution effect between good firm-specific corporate governance mechanisms and the strictness of the regulatory environment.

Number of Pages in PDF File: 49

Keywords: Managerial Entrenchment, Corporate Governance, Value relevance of earnings, Sarbanes-Oxley Act

JEL Classification: G34, G14, K22

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Date posted: October 5, 2007  

Suggested Citation

Ng, Anthony C. and Gul, Ferdinand A. and Mensah, Yaw M., Managerial Entrenchment and Value-Relevance of Earnings During the Pre- and Post- Sarbanes Oxley Periods (September 2007). Available at SSRN: http://ssrn.com/abstract=1012746 or http://dx.doi.org/10.2139/ssrn.1012746

Contact Information

Anthony C. Ng (Contact Author)
Hong Kong Polytechnic University ( email )
Hung Hom, Kowloon
Hong Kong
Ferdinand A. Gul
Monash University Sunway Campus ( email )
Jalan Lagoon Selatan
Selangor Darul Ehsan
Bandar Sunway, 46150
Malaysia
Yaw M. Mensah
Rutgers Business School - Newark & New Brunswick ( email )
94 Rockafeller Road
Piscataway, NJ 08854
United States
848.445.4369 (Phone)
732.445.0351 (Fax)
HOME PAGE: http://business.rutgers.edu
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