Abstract

http://ssrn.com/abstract=1584763
 
 

References (33)



 
 

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Information Content of Public Firm Disclosures and the Sarbanes-Oxley Act


Shimon Kogan


University of Texas at Austin

Bryan Routledge


Carnegie Mellon University - David A. Tepper School of Business

Jacob S. Sagi


University of North Carolina Kenan-Flagler Business School

Noah A. Smith


Carnegie Mellon University - School of Computer Science

April 5, 2010


Abstract:     
We find evidence that public firm disclosure, in the form of Management Discussion and Analysis (Sections 7 and 7a of annual reports), is more informative about the firm's future risk following the passage of the Sarbanes-Oxley Act of 2002. Employing a novel text regression, we are able to predict, out of sample, firm return volatility using the Management Discussion and Analysis section from annual 10-K reports (which contains forward-looking views of the management). Using the relative performance of the text model as a proxy for the informativeness of reports, we show that the MD&A sections are significantly more informative after the passage of SOX. We further show that this additional information is associated with a reduction in share illiquidity, suggesting that the information divulged was new to investors. Finally, we find that the increase in informativeness of MD&A reports is most pronounced for firms with higher costs of adverse selection.

Number of Pages in PDF File: 35

Keywords: Disclosure, text analysis, Sarbanes-Oxley Act of 2002, volatility forecast

JEL Classification: G19

working papers series


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Date posted: April 5, 2010  

Suggested Citation

Kogan, Shimon and Routledge, Bryan and Sagi, Jacob S. and Smith, Noah A., Information Content of Public Firm Disclosures and the Sarbanes-Oxley Act (April 5, 2010). Available at SSRN: http://ssrn.com/abstract=1584763 or http://dx.doi.org/10.2139/ssrn.1584763

Contact Information

Shimon Kogan (Contact Author)
University of Texas at Austin ( email )
Austin, TX 78712
United States
512-232-6839 (Phone)
Bryan R. Routledge
Carnegie Mellon University - David A. Tepper School of Business ( email )
5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
(412) 268-7588 (Phone)
(412) 268-7064 (Fax)
Jacob Sagi
University of North Carolina Kenan-Flagler Business School ( email )
Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
HOME PAGE: http://public.kenan-flagler.unc.edu/faculty/sagij/

Noah A. Smith
Carnegie Mellon University - School of Computer Science ( email )
5000 Forbes Avenue
Pittsburgh, PA 15213
United States
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