Impact of the Sarbanes-Oxley Act on Special Items

Abstract

The enactment of the Sarbanes-Oxley Act (SOX) contributes to the increase in frequency of special items on income statements. This increase is not concentrated in special item types implicated in earnings management or restructuring activities, nor does it depend on the sign of special items. The frequency increase may result from managers and auditors becoming more diligent in recognizing special items. It is an unintended consequence of SOX that should be considered by regulators in their cost-benefit analysis for SOX.

Keywords: Sarbanes-Oxley, special items, panel regression, difference-in-differences

JEL Classification: M41, C23