The Sarbanes-Oxley Act of 2002 and Security Market Behavior: Early Evidence

Posted: 26 May 2006

See all articles by Zabihollah Rezaee

Zabihollah Rezaee

University of Memphis - School of Accountancy

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics

Multiple version iconThere are 2 versions of this paper

Abstract

The Sarbanes-Oxley Act of 2002 (the Act) was enacted in response to numerous corporate and accounting scandals. It aims at reinforcing corporate accountability and professional responsibility in order to restore investor confidence in corporate America. This study examines the stock market reaction to the Act and finds a positive (negative) abnormal return at the time of several legislative events that increased (decreased) the likelihood of the passage of the Act. We interpret this finding as evidence supporting the notion that the Act is wealth-increasing in the sense that its induced benefits significantly outweigh its imposed compliance costs. We also find that the market reaction is more positive for firms that are more compliant with the provisions of the Act prior to its enactment.

Keywords: Financial scandals, the Sarbanes-Oxley Act of 2002, market reactions, corporate governance

JEL Classification: G14, G28, M41

Suggested Citation

Rezaee, Zabihollah and Jain, Pankaj K., The Sarbanes-Oxley Act of 2002 and Security Market Behavior: Early Evidence. Contemporary Accounting Research, Vol. 23, No. 3, Fall 2006. Available at SSRN: https://ssrn.com/abstract=904649 or http://dx.doi.org/10.2139/ssrn.498083

Zabihollah Rezaee (Contact Author)

University of Memphis - School of Accountancy ( email )

Fogelman College of Business and Economics
Memphis, TN 38152-6460
United States
901-678-4652 (Phone)

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

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