Discretionary Accrual Changes Following the Sarbanes-Oxley Act

57 Pages Posted: 12 Sep 2007 Last revised: 16 Feb 2020

See all articles by Jian Zhou

Jian Zhou

University of Hawaii at Manoa

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Date Written: February 1, 2007

Abstract

We examine changes in discretionary accruals following the Sarbanes-Oxley Act (SOX). SOX imposes considerably greater potential penalties on CEO/CFOs who engage in financial wrongdoing; therefore, risk averse managers are likely to report lower earnings by reducing discretionary accruals following SOX. Our results indicate that (1) Canadian firms subject to SOX report lower discretionary accruals in the post-SOX period; (2) there is no regulatory spillover effect of SOX on Canadian firms not under the jurisdiction of SOX; (3) the impact of SOX on firms' conservative reporting through discretionary accruals in the post-SOX period is not homogeneous; it is more pronounced for firms that were aggressive in the pre-SOX period.

Keywords: Sarbanes-Oxley Act, discretionary accruals, regulatory spillover

Suggested Citation

Zhou, Jian and Lobo, Gerald J., Discretionary Accrual Changes Following the Sarbanes-Oxley Act (February 1, 2007). Journal of Accounting, Auditing and Finance, Vol. 25, No. 1, 2010, Available at SSRN: https://ssrn.com/abstract=1012870 or http://dx.doi.org/10.2139/ssrn.1012870

Jian Zhou (Contact Author)

University of Hawaii at Manoa ( email )

Honolulu, HI 96822
United States

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4838 (Phone)
713-743-4828 (Fax)

HOME PAGE: http://www.bauer.uh.edu/acct/acctprofile.asp?search=Gerald%20Lobo

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