The Value of 'Cooling Off'

Abstract

The Sarbanes-Oxley Act of 2002 mandated that an auditing firm's independence is impaired if a former member of a public company's audit engagement team accepts a supervisory accounting position or financial reporting oversight role with the audit client, unless that individual observes a one-year cooling off period. Drawing on recent empirical research, we question whether investors prefer this one size fits all cooling off mandate, or whether a company-specific disclosure alternative would have equal or greater value relevance.

Keywords: Sarbanes-Oxley Act, corporate governance, stakeholders, auditing, labor market, audit team, cooling off, hiring, accouting, regulation, finance

JEL Classification: G12, G34, G38, J44, M41, M45, M49