The Effect of SOX Section 404: Costs, Earnings Quality and Stock Prices
Pennsylvania State University - Department of Finance
August 26, 2009
Journal of Finance, Forthcoming
This paper exploits a natural quasi-experiment to isolate the effects that were uniquely due to Sarbanes-Oxley Act (SOX): US 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. Net-in-net, SOX compliance reduced the market value of small firms.
Number of Pages in PDF File: 73
Keywords: Sarbanes-Oxley Act, Section 404, Regression Discontinuity, Audit Fees, Earnings Management, Returns
JEL Classification: G18, G38, K22
Date posted: May 1, 2007 ; Last revised: August 26, 2009
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