The Impact of SOX on the Value Relevance of Earnings, Book Value, And ‘Other Information’*

Posted: 24 Nov 2009

See all articles by Li Zheng Brooks

Li Zheng Brooks

Washington State University - Department of Accounting

C.S. Agnes Cheng

Hong Kong Polytechnic University - School of Accounting and Finance

Joe Johnston

Louisiana State University, Baton Rouge

Samuel L. Tiras

Indiana University - Kelley School of Business

Date Written: August 31, 2009

Abstract

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

Brooks, Li Zheng and Cheng, C.S. Agnes and Johnston, Joe and Tiras, Samuel L., The Impact of SOX on the Value Relevance of Earnings, Book Value, And ‘Other Information’* (August 31, 2009). Available at SSRN: https://ssrn.com/abstract=1465988

Li Zheng Brooks

Washington State University - Department of Accounting ( email )

Pullman, WA 99164
United States
509-595-0124 (Phone)

C.S. Agnes Cheng (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Joe Johnston

Louisiana State University, Baton Rouge ( email )

United States

Samuel L. Tiras

Indiana University - Kelley School of Business ( email )

801 W. Michigan Street
Indianapolis, IN 46202
United States
(317) 274-3420 (Phone)

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