Changes in Analysts’ Information Environment Following Sarbanes-Oxley Act and the Global Settlement

52 Pages Posted: 23 Aug 2007 Last revised: 9 Apr 2013

Joy Begley

University of British Columbia (UBC) - Sauder School of Business

Yanmin Gao

City University of Hong Kong - College of Business

Qiang Cheng

Singapore Management University

Date Written: August 28, 2009

Abstract

This paper examines how governance and regulatory reforms surrounding the Sarbanes-Oxley Act (SOX) of 2002 and the Global Settlement (GS) affect the analysts’ information environment, specifically the quality of financial analysts’ common and private information. Our information quality measures are based on characteristics of financial analyst forecasts as developed in Barron, Kim, Lim and Stevens (1998). We find that the passage of SOX and the concurrent analyst regulations are associated with a temporary increase in the quality of common information upon their adoption, but the increase is not maintained. By one year after the introduction of the reforms both common and private information quality decline and continue to stay below their pre-SOX/GS levels. This decline is clearly seen in firms with high information quality prior to the reforms, but firms with moderate or low prior information quality experience little if any improvement. These results suggest that overall, financial analysts have not experienced an increase in their information quality as measured by the characteristics of their forecasts.

Keywords: the Sarbanes-Oxley Act, information quality, analyst forecast, Global Settlement

JEL Classification: G18, G34, G38, K22, M41, M45

Suggested Citation

Begley, Joy and Gao, Yanmin and Cheng, Qiang, Changes in Analysts’ Information Environment Following Sarbanes-Oxley Act and the Global Settlement (August 28, 2009). AAA 2008 Financial Accounting and Reporting Section (FARS) Paper. Available at SSRN: https://ssrn.com/abstract=1008986 or http://dx.doi.org/10.2139/ssrn.1008986

Joy Begley

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Yanmin Gao

City University of Hong Kong - College of Business ( email )

Hong Kong
Hong Kong

Qiang Cheng (Contact Author)

Singapore Management University ( email )

60 Stamford Road
Singapore, 178900
Singapore

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