The Impact of SOX on the Value Relevance of Earnings, Book Value, And ‘Other Information’*
Posted: 24 Nov 2009
Date Written: August 31, 2009
To assess impact of Sarbanes-Oxley Act of 2002 (SOX), this paper examines changes in the value-relevance of total information (including earnings, book value and ‘other information’), where ‘other information’ is surrogated by analysts forecasts and information-related characteristics. We test for changes in value-relevance across three sub-periods: four years before Levitt’s “Numbers Game” speech (Pre-Levitt: September, 1994 – August, 1998); low confidence period (Low: September, 1998 - July 2002); and, post-SOX period (Post-SOX: November, 2004 - July, 2008). We find the highest value-relevance in the Post-SOX period, when we include ‘other information’ in the model. These findings are consistent with the theory developed in Lambert, et al. (2008) that private information increases when public information precision improves. Since SOX aimed to improve the complete information environment, prior findings that include only accounting summary numbers may provide biased conclusions, our study contributes to current value-relevance literature by including ‘other information’ in this analysis.
Keywords: Sarbanes-Oxley Act, Value-Relevance, Other Information
JEL Classification: M40
Suggested Citation: Suggested Citation