Abstract

http://ssrn.com/abstract=940434
 
 

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Market Reaction to Events Surrounding the Sarbanes-Oxley Act of 2002 and Earnings Management


Haidan Li


Santa Clara University - Leavey School of Business

Morton Pincus


University of California, Irvine

Sonja O. Rego


Indiana University - Kelley School of Business - Department of Accounting


Journal of Law and Economics, February 2008

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.

Keywords: Sarbanes-Oxley, earnings management, event study

JEL Classification: G38, G12, M41, M43, M49

Accepted Paper Series


Not Available For Download

Date posted: October 26, 2006  

Suggested Citation

Li, Haidan and Pincus, Morton and Rego, Sonja O., Market Reaction to Events Surrounding the Sarbanes-Oxley Act of 2002 and Earnings Management. Journal of Law and Economics, February 2008. Available at SSRN: http://ssrn.com/abstract=940434

Contact Information

Haidan Li
Santa Clara University - Leavey School of Business ( email )
500 El Camino Real
Santa Clara, CA California 95053
United States
408-554-5181 (Phone)
Morton P.K. Pincus
University of California, Irvine ( email )
Irvine, CA 92697-3125
United States
949-824-4062 (Phone)
949-725-2812 (Fax)
Sonja O. Rego (Contact Author)
Indiana University - Kelley School of Business - Department of Accounting ( email )
1309 E. 10th Street
Bloomington, IN 47405
United States
812 855-6356 (Phone)
HOME PAGE: http://kelley.iu.edu/Accounting/faculty/page12887.cfm?ID=33017

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