Shine a light: How firm responses to announcing earnings restatements changed after Sarbanes–Oxley

Journal of Business Ethics (2019) 160:427–443

17 Pages Posted: 18 Nov 2021

See all articles by Jo-Ellen Pozner

Jo-Ellen Pozner

Santa Clara University

Aharon Mohliver

London Business School - Department of Strategy & Entrepreneurship

Celia Moore

Imperial College Business School; Harvard University - Edmond J. Safra Center for Ethics

Date Written: June 25, 2018

Abstract

We explore how the Sarbanes–Oxley Act of 2002 created pressure for firms to take more visible and costly corrective action following the announcement of an earnings restatement. Building on theory about focusing events, the institutional effects of legislative change, and the agenda-setting role of the media, we propose that Sarbanes–Oxley created reactive normative pressure on firms that announce earnings restatements, increasing the likelihood of CEO replacement in their aftermath. We theorize that Sarbanes–Oxley changed the meaning—and therefore the impact—of media coverage of earnings restatements. Our findings show that firm behavior after Sarbanes–Oxley did change in ways that are consistent with the intent of the legislation: to increase executives’ accountability for the reliability of their firms’ financial statements. Moreover, we show this change is a result both of the direct effect of the legislation on increasing CEO accountability as well as through intensifying the effect of the media spotlight on misconduct

Keywords: Earnings Restatements, Legislative change, CEO change, Media, Sarbanes–Oxley

Suggested Citation

Pozner, Jo-Ellen and Cohen Mohliver, Aharon and Moore, Celia, Shine a light: How firm responses to announcing earnings restatements changed after Sarbanes–Oxley (June 25, 2018). Journal of Business Ethics (2019) 160:427–443, Available at SSRN: https://ssrn.com/abstract=3951082

Jo-Ellen Pozner

Santa Clara University ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

Aharon Cohen Mohliver (Contact Author)

London Business School - Department of Strategy & Entrepreneurship ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Celia Moore

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Harvard University - Edmond J. Safra Center for Ethics ( email )

124 Mount Auburn Street
Suite 520N
Cambridge, MA 02138
United States

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