Reporting Quality, SOX, and the Cost of Debt

40 Pages Posted: 25 Jun 2011

See all articles by Andrew K. Prevost

Andrew K. Prevost

University of Vermont

Christopher J. Skousen

Utah State University - School of Accountancy

Ramesh P. Rao

Oklahoma State University - Stillwater - Spears School of Business - Department of Finance

Date Written: June 22, 2011

Abstract

This paper studies the heretofore unexamined effect of Sarbanes-Oxley Act of 2002 (SOX) on the spread-accruals relationship. We document that SOX has no impact on the overall spread-accruals relationship but, as hypothesized, it has a moderating effect on the discretionary (but not innate) component of accruals. The latter effect however is only revealed in the subset of firms characterized by high information quality risk in the pre-SOX period. The paper also adds robustness to prior findings by reconfirming the positive relationship between accruals and cost of debt but using a sample of seasoned debt issues with available secondary market prices. Earlier studies used historical costs of debt or focused only on newly issued debt. We also reconfirm that the accrual-debt cost relationship is stronger for innate than for discretionary accruals.

Suggested Citation

Prevost, Andrew K. and Skousen, Christopher J. and Rao, Ramesh P., Reporting Quality, SOX, and the Cost of Debt (June 22, 2011). Available at SSRN: https://ssrn.com/abstract=1871153 or http://dx.doi.org/10.2139/ssrn.1871153

Andrew K. Prevost

University of Vermont ( email )

Burlington, VT 05405
United States

Christopher J. Skousen (Contact Author)

Utah State University - School of Accountancy ( email )

College of Business
Logan, UT 84322-3540
United States

Ramesh P. Rao

Oklahoma State University - Stillwater - Spears School of Business - Department of Finance ( email )

Spears School of Business
Stillwater, OK 74078-4011
United States
405-744-1385 (Phone)
405-744-5180 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
133
Abstract Views
1,263
rank
217,463
PlumX Metrics