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1
Bhabra, Harjeet Singh, and Ashrafee Tanvir Hossain. "The Sarbanes-Oxley Act and corporate acquisitions." Managerial Finance 43, no. 4 (2017): 452–70. http://dx.doi.org/10.1108/mf-10-2016-0291.
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Purpose The purpose of this paper is to analyze and compare the performance of corporate acquisitions between the pre- and post-SOX periods, using both short-term and long-term analyses. Design/methodology/approach The sample includes 9,463 mergers and tender offers undertaken by publicly traded US firms between 1996 and 2009. The authors used the standard event study methodology for short-term performance analysis; Berkovitch and Narayanan (1993) method to identify merger motives; and standard benchmark adjusted return on assets (sales) (Barber and Lyon, 1996) and buy-and-hold abnormal returns (Mitchell and Stafford, 2000) to analyze long-term performance. Findings Compared to the pre-SOX period, US acquirers experience significantly higher announcement returns in the post-SOX period; the results are robust to various controls like bidder, target and deal characteristics, bidder management quality, and product market competition. Similar results (in favor of post-SOX US acquirers) are obtained with long-term post-acquisition operating and stock performance analyses. Research limitations/implications This paper only addressed domestic acquisitions. Originality/value This paper adds to the growing body of research on the impact of SOX on publicly traded US corporations. By examining corporate acquisitions, an important long-term investment decision for a firm, the paper shows that despite the complex nature of SOX, substantial compliance costs and the unintended negative consequence it engendered, the act had a beneficial impact in an important area of corporate finance.
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HassabElnaby, Hassan R., Amal Said, and Glenn Wolfe. "Audit Committees Oversight Responsibilities Post Sarbanes‐Oxley Act." American Journal of Business 22, no. 2 (2007): 19–32. http://dx.doi.org/10.1108/19355181200700007.
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In this study we examine the oversight responsibilities of audit committees in the post Sarbanes‐Oxley Act of 2002 (SOX) era. The results show that audit committee oversight responsibilities assigned and disclosed in proxy statements expanded post‐SOX compared to pre‐SOX. We design a survey instrument to measure the difference between the perceived oversight responsibilities of audit committee members and the oversight responsibilities actually assigned in the proxy. Our results indicate that although audit committees made a substantial commitment to increase their assigned responsibilities over the period of 2001 to 2004, they still need to do more to meet the many additional challenges facing them in a post‐SOX environment. Overall, our results suggest that the intent of SOX‐for audit committees to be more involved and active in the oversight role of an organization‐is becoming institutionalized. These results should be interesting to policy makers, a variety of interest groups, and accounting researchers.
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Hoag, Matthew, Mark Myring, and Joe Schroeder. "Has Sarbanes-Oxley standardized audit quality?" American Journal of Business 32, no. 1 (2017): 2–23. http://dx.doi.org/10.1108/ajb-05-2015-0016.
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Purpose The purpose of this paper is to examine whether the institutional changes accompanying the passage of the Sarbanes-Oxley Act of 2002 (SOX) have standardized the audit’s role in the overall financial reporting process, thereby reducing the impact of auditor characteristics on financial reporting quality. Design/methodology/approach To test this hypothesis, the association between audit quality characteristics (auditor size and industry expertise) and measures of financial reporting quality (analyst earning forecast dispersion and accuracy) are estimated using regression analysis. Results of this analysis are compared across the pre- and post-SOX periods. Findings The results of the study document a significant relationship between auditor size (Big N vs non-Big N) and financial reporting quality (as proxied by analyst earnings forecast properties) during the pre-SOX period but not in the post-SOX period. Auditor industry expertise is significantly associated with financial reporting quality throughout the entire sample period. Thus, financial reporting quality continues to be dependent on the degree of specialization of an audit firm in both the pre- and post-SOX periods; however, the impact of auditor size as a surrogate for quality has diminished. Originality/value The SOX Act of 2002 represented one of the most significant changes in the regulation of audits. This paper adds to the literature by examining the Act’s effects on financial professionals’ perception of the impact of audit firm characteristics on their client’s financial reporting quality.
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Mustafa, Sadaf. "BARRIERS IN IMPLEMENTATION OF THE SARBANES- OXLEY ACT (SOX) 2002 CONFRONTED BY STAKEHOLDERS: IN THE CONTEXT OF PAKISTAN." Journal of Research in Social Development and Sustainability 1, no. 1 (2022): 1–12. https://doi.org/10.56596/jrsds.v1i1.18.
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To improve financial reporting standards and increase openness and accountability in public businesses, the Sarbanes-Oxley Act (SOX) of 2002 was implemented in the United States. Similar statutes and rules have been incorporated by numerous nations, including Pakistan, to raise their own financial reporting standards. There are numerous obstacles preventing the SOX from being implemented in Pakistan. The biggest challenges are a lack of stakeholder knowledge, limited resources, and a difficult legal and regulatory environment. These obstacles have made it extremely difficult for Pakistani stakeholders to fully comply with the Act's requirements, which has led to a severe lack of trust in the country's corporate financial reporting. In this investigation, the primary effort is to investigate the knowledge of entrepreneurs about SOX, and the effect of the Sarbanes-Oxley Act of 2002 on business in Pakistan. The author explores the effect of the Sarbanes-Oxley Act on corporate culture, societal & internal controls, and barriers to the implementation of SOX in Pakistan. The objective was achieved through a close-ended survey questionnaire filled by various stakeholders of the big four/ finance directors of different firms/Finance analysts/controllers of regulation of different multinational companies. The result shows that corporate culture is not a hurdle in the implementation of SOX. Potential benefits could be more than cost. The firm can face documentation problems in the process of implementation.
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DeFond, Mark L., and Jere R. Francis. "Audit Research after Sarbanes-Oxley." AUDITING: A Journal of Practice & Theory 24, s-1 (2005): 5–30. http://dx.doi.org/10.2308/aud.2005.24.s-1.5.
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The scrutiny auditing received following Enron's failure and the accounting scandals at Worldcom and other companies provides compelling evidence that auditing matters and is important. What is unclear, however, is whether auditing was sufficiently “broken” in the first place to warrant the radical reforms and changes effected by the Sarbanes-Oxley Act of 2002 (SOX). While there have been some high profile corporate failures and accounting scandals, the number of demonstrated audit failures as evidenced by successful litigation or U.S. Securities and Exchange Commission (SEC) sanctions is quite small and approaches an annual failure rate of close to zero. In addition, our interpretation of the academic research suggests that many of the “solutions” embodied in SOX are not only unlikely to solve the profession's alleged problems; they may well have serious unintended negative consequences. So the disconnect is large between the scientific evidence on audit quality and institutional changes premised on the assumption that auditing is broken. This paper attempts to stimulate research into some of the important questions implicitly raised by SOX regarding the audit profession's potential failings. An outline of our primary observations and suggestions are presented in the paper's Introduction.
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Kwak, Wikil, Yong Shi, and Gang Kou. "Predicting Bankruptcy After The Sarbanes-Oxley Act Using The Most Current Data Mining Approaches." Journal of Business & Economics Research (JBER) 10, no. 4 (2012): 233. http://dx.doi.org/10.19030/jber.v10i4.6899.
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Our study proposes several current data mining methods to predict bankruptcy after the Sarbanes-Oxley Act (2002) using 2007-2008 U.S. data. The Sarbanes-Oxley Act (SOX) of 2002 was introduced to improve the quality of financial reporting and minimize corporate fraud in the U.S. Because of this SOX implementation, a companys financial statements are assumed to provide higher quality financial information for investors and other stakeholders. The results of our data mining approaches in our bankruptcy prediction study show that Bayesian Net method performs the best (85% overall prediction rate with 94% in AUC), followed by J48 (85% with 82% AUC), Decision Table (83.52%), and Decision Tree (82%) methods using financial and other data from the 10-K report and Compustat. These results are better than previous bankruptcy prediction studies before the SOX implementation using most current data mining approaches.
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Karanja, Erastus, and Jigish Zaveri. "Ramifications of the Sarbanes Oxley (SOX) Act on IT governance." International Journal of Accounting and Information Management 22, no. 2 (2014): 134–45. http://dx.doi.org/10.1108/ijaim-02-2013-0017.
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Purpose – In most firms, accounting and financial information and reporting systems are either incorporated or embedded in computer-based information systems (IS). Despite the important roles that these computer-based IS play in facilitating the SOX Act compliance initiatives, the act is silent on the roles of the CIOs, although it does stipulate specific functions for the CEOs, CFOs, and the auditors. Based on a detailed analysis of the extant literature, this article argues that IT units, under the leadership of the CIOs, contribute significantly in the procurement, design, implementation, and the governance of these computer-based IS. The paper aims to discuss these issues. Design/methodology/approach – The researchers generate and empirically test hypotheses using a panel data set obtained from press releases issued by firms following the hiring of CIOs between 1999 and 2005. Findings – The results reveal that, after the enactment of the SOX Act in 2002, many firms hired new CIOs in the post-SOX Act period. Also, many of these executives were hired to fill newly created Chief information officer (CIO) positions. The results support the argument that the SOX Act has influenced the roles of senior IT executives and IT governance. Research limitations/implications – Although this study focused on hiring trends, there are other characteristics associated with CIOs that might have an impact on corporate IT governance. Future studies could investigate whether or not, for instance, firms reported fewer IT material weaknesses before or after the hire of the CIOs. Originality/value – This research presents the argument and detailed discussion that while the SOX Act does not explicitly require the CIOs to sign off on the accounting/financial statements and reports, their role is fundamental in making the firm meet the SOX Act compliance standards.
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DeFond, Mark L., Mingyi Hung, Emre Carr, and Jieying Zhang. "Was the Sarbanes-Oxley Act Good News for Corporate Bondholders?" Accounting Horizons 25, no. 3 (2011): 465–85. http://dx.doi.org/10.2308/acch-50008.
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SYNOPSIS We investigate the impact of the Sarbanes-Oxley Act (SOX) on corporate bondholder value by examining the bond market reaction to news events leading up to the passage of SOX. The net impact of SOX on bondholder value is difficult to predict, and there are many reasons why it may be viewed as either good or bad news. Our primary analysis reveals a significant decline in average bondholder value around these events. In addition, cross-sectional tests find that the decline is significantly larger among riskier bonds and among bonds held by firms that are expected to experience the greatest changes under SOX. Thus, our findings are consistent with the bond market expecting the exogenously imposed changes under SOX to make bondholders worse off.
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Chang, Hsihui, and Helen HL Choy. "The effect of the Sarbanes–Oxley Act on firm productivity." Journal of Centrum Cathedra 9, no. 2 (2016): 120–42. http://dx.doi.org/10.1108/jcc-09-2016-0012.
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Purpose This paper aims to examine the effect of the Sarbanes–Oxley Act (SOX), which was signed by President George W. Bush and came into effect on July 30, 2002, on firm productivity. Design/methodology/approach The authors use the total factor productivity (TFP) as our measure of firm productivity. Findings Analyzing annual firm-level data from the Compustat database for the period of 1991-2006, the authors find that firm productivity increases at a higher rate in the post-SOX period. The results indicate that, although firms incur significant costs in complying with the requirements of the SOX, they also benefit from these requirements as evidenced by the improved productivity over time post-SOX. There is also a shift in the output elasticities from capital toward labor. The SOX has a positive effect on the output elasticity of labor but a negative impact on that of capital. Research limitations/implications The results have the following important implications. The SOX is a value-enhancing regulation in that it not only strengthens a firm’s corporate governance but also improves its productivity. However, compliance with the SOX can impose a long-term cost on firms: the decrease in the capital investment, leading to a decline in the output elasticity of capital. If this decline in the capital investment continues, it can have an adverse effect on firm productivity in the long term. Originality/value This paper extends the literature along the line of the actual operational effects of the SOX regulation by examining its effect on the productivity of firms.
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Nwogugu, Michael. "Efficiency of Sarbanes-Oxley act: willingness-to-comply and agency problems." Corporate Ownership and Control 5, no. 1 (2007): 449–58. http://dx.doi.org/10.22495/cocv5i1c3p5.
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Using the events that occurred in a series of corporate transactions in the US (Nwogugu (2004)), this article analyzes the efficiency of the Sarbanes-Oxley Act (“SOX”; 2002, USA) and introduces new quantitative models of Willingness-To-Comply which is a statistical measure of the employee/company’s propensity to comply with SOX and similar regulations.
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Burks, Jeffrey J. "Are Investors Confused by Restatements after Sarbanes-Oxley?" Accounting Review 86, no. 2 (2011): 507–39. http://dx.doi.org/10.2308/accr.00000017.
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ABSTRACT: Regulators have expressed concern that investors are confused by the large number and questionable materiality of accounting restatements since passage of the Sarbanes-Oxley Act (SOX). This study looks for evidence of investor confusion by examining stock returns and trading volume. I find that the initial price reaction to restatement announcements becomes significantly less negative after SOX, even after controlling for the less egregious nature of post-SOX restatements. To assess whether the less negative reaction represents under-reaction, I test whether stock prices drift negatively over the months and years after the initial reaction. I find no evidence of statistically negative drifts unique to the post-SOX period. In fact, I find that post-SOX drifts are statistically less negative than pre-SOX drifts, suggesting that price efficiency actually improves after SOX. Finally, I find no evidence that post-SOX restatements have higher trading volume after controlling for contemporaneous returns, suggesting no increase in disagreement among investors about the restatements. Thus, the findings provide little evidence that investors are confused by post-SOX restatements.
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Engkuchik, Engku N. S., and Halil D. Kaya. "The Impact of the Sarbanes-Oxley Act on Takeover Protection Provisions." Journal of Ecohumanism 3, no. 6 (2024): 760–72. http://dx.doi.org/10.62754/joe.v3i6.4048.
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We investigate the effects of the Sarbanes-Oxley (SOX) Act on corporate governance metrics, such as the takeover protection provisions and the governance index (G-index). We look at provisions related to takeover protection such as severance agreements, indemnity contracts, golden parachutes, compensation schemes, director liability and indemnity. We examine the effects of SOX between the two periods, designating the 1998–2000 timeframe as the pre–SOX period and the 2002–2004 timeframe as the post–SOX period. Then, in order to determine whether these provisions were affected in any way after 2004, we compare the values from 2004 to the values from 2006. We discover that between the pre-SOX and post-SOX periods, the G-index mean score had increased, indicating a declining degree of total shareholder rights. When we examine the six protection provisions, we discover that two of them—compensation plans and golden parachutes—had deteriorated (i.e., the percentage of firms using these measures had increased) and four of them—indemnification contracts, severance agreements, director indemnity, and director liability—had improved. Put differently, following the passage of the Act, businesses began to select different takeover protection options. However, the SOX's long-term effects were restricted to two variables only. After 2004, the proportion of companies employing golden parachutes climbed (i.e., negatively), whilst the percentage of companies utilizing severance agreements decreased (i.e., positively). We conclude that, in general, the SOX Act had a favorable effect on the majority of the measures that we looked at, with the exception of two measures: golden parachutes and compensation schemes.
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Stefou, Marina. "The SOX 404 procedure; is it still so repelling to foreign issuers?" Corporate Ownership and Control 6, no. 1 (2008): 147–57. http://dx.doi.org/10.22495/cocv6i1p15.
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The need for effective and competitive financial markets is reflected in the internal control procedures of listed companies. The recent banking crises and the famous financial scandals have revealed the need for strong internal control mechanisms. Such mechanisms improve firms performance, reduce information asymmetry and are expected to raise firms value. However, due to the inherent limitations of internal control achievement of the financial reporting objectives cannot be absolutely ensured. A great reform in the internal control mechanism was introduced by the controversial Article 404 of Sarbanes-Oxley Act of 2002. This paper lays out the internal control provision described in Sarbanes-Oxley Act, presents the extraterritorial effects on foreign issuers, compares and summarizes overall findings towards ensuring a better financial environment with regard to the international and European corporate governance framework applied
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Harakeh, Mostafa, Ghida Matar, and Nagham Sayour. "Information asymmetry and dividend policy of Sarbanes-Oxley Act." Journal of Economic Studies 47, no. 6 (2020): 1507–32. http://dx.doi.org/10.1108/jes-08-2019-0355.
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PurposeThe literature of financial economics documents a causal relationship between the level of information asymmetry in the firm and its dividend policy. Nevertheless, this relationship suffers endogeneity problems arising from reverse causality and omitted variable bias. The purpose of this study is to examine how the dividend policy reacts to changes in asymmetric information in an exogenous research setting.Design/methodology/approachTo overcome endogeneity concerns, the authors employ the enactment of the Sarbanes-Oxley Act (SOX) in the US in 2002 as a source of an exogenous variation in the level of information asymmetry to study the potential effect that this variation might have on the dividend policy. In doing so, we utilize a difference-in-differences research design, in which the treatment group is US publicly traded firms that were exposed to the policy and the control group is publicly traded companies in the UK where SOX was not enacted. Both countries have similar institutional settings and enforcement of laws, which makes them comparable in this research context.FindingsThe authors’ findings show that, compared to UK companies, US firms increase their dividend payments following a reduction in asymmetric information as a result of the SOX enactment.Originality/valueThe study contributes to the literature of financial economics by showing that policy makers can mitigate agency conflicts and protect shareholders by improving the corporate information environment and reducing asymmetric information.
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Dube, Sema. "Trickle Down Effect Of The Sarbanes Oxley Act On A Privately-Held Seasonal Textile Manufacturer." Journal of Business Case Studies (JBCS) 3, no. 4 (2007): 45–50. http://dx.doi.org/10.19030/jbcs.v3i4.4864.
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The Sarbanes?Oxley Act (SOX) of 2002 was intended for enforcing accuracy and transparency in the financial statements of publicly held corporations, primarily to protect investors. While it does not directly impact private corporations, we present an indirect effect of SOX related to unsubstantiated deductions by retailers, against a privately?held manufacturer, in the textile industry.
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Cascini, Karen T., Alan DelFavero, and Mario Mililli. "The Sarbanes Oxley Acts Contribution To Curtailing Corporate Bribery." Journal of Applied Business Research (JABR) 28, no. 6 (2012): 1127. http://dx.doi.org/10.19030/jabr.v28i6.7329.
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In the wake of corporate scandals occurring in the early 2000s, a need for stricter regulation was deemed necessary by the investors of U.S. public companies. In 2002, the Sarbanes-Oxley Act (SoX) was created. Accordingly, under the rules of SoX, U.S. corporations were faced with increased oversight and also needed to substantially improve their internal controls. As companies began to scrutinize their internal affairs more closely, some businesses detected other forms of criminal activity occurring internally, such as bribery. Those companies and individuals found to have committed bribery have violated the Foreign Corrupt Practices Act of 1977 (FCPA). Throughout this paper, a plausible correlation between SoX and a recent increase in reported violations of the FCPA will be assessed. This possibility is evaluated via a presentation of cases involving multinational corporations that have been found to have violated the FCPA. Based on the authors research, a pattern does exist between SoX and the enforcement of the FCPA. Finally, suggestions to modify the punishment for companies found guilty of committing bribery are also presented.
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Kanagaretnam, Kiridaran, Gerald J. Lobo, and Dennis J. Whalen. "Relationship between board independence and firm performance post Sarbanes Oxley." Corporate Ownership and Control 11, no. 1 (2013): 65–80. http://dx.doi.org/10.22495/cocv11i1art6.
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We examine the relationship between board independence and firm performance over multiple years, post-Sarbanes Oxley. The enactment of the Sarbanes-Oxley Act (SOX) in July, 2002 coincided with the NYSE/NASDAQ proposals to alter their standards for listed companies. These changes included a requirement that boards be comprised of a majority of independent directors and tightened the criteria for a director to be considered “independent”. We hypothesize and find that the passage of SOX, together with the new NYSE/NASDAQ regulations, result in independent directors who are more effective monitors of management, leading to stronger firm performance. Our results should bolster investor confidence in the financial markets at a time when the NYSE/NASDAQ has strengthened the corporate governance standards for listed companies.
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Eddie, Ian. "Accounting Conservatism and Income Smoothing after the Japanese Sarbanes– Oxley Act." Asian Journal of Business and Accounting 17, no. 1 (2024): 1–40. http://dx.doi.org/10.22452/ajba.vol17no1.1.
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Manuscript type: Research paper Research aims: The Japanese Sarbanes-Oxley Act (J-SOX) was implemented for the fiscal years ending on or after March 31, 2009 to ensure the reliability of financial reporting by listed firms. This study examines the effect of J-SOX on financial reporting quality, proxied by accounting conservatism and income smoothing. Design/Methodology/Approach: This study conducts empirical analyses using a sample of Japanese listed firms with fiscal year-ends of March 31 from 2007 to 2010. We obtain financial data and stock price data from the Nikkei NEEDS Financial QUEST, stock return data from NPM Monthly Stock Return Data, and auditor data from eol. The sample consists of 7,752 and 7,594 firm-years regarding accounting conservatism, and 7,380 firmyears regarding income smoothing. We perform multiple regression analyses with a dummy variable for the post-J-SOX period to compare the levels of accounting conservatism and income smoothing between the pre- and post-J-SOX periods. Research findings: We find that accounting conservatism increased and income smoothing decreased immediately after J-SOX implementation. In additional analyses, we extend the sample period to 2012 and find the evidence indicating that the increasing effect of J-SOX on accounting conservatism may have persisted, but the decreasing effect on income smoothing has not persisted. These findings suggest that financial reporting quality in Japanese firms may have improved following J-SOX implementation through increased accounting conservatism (timely loss recognition). Theoretical contribution/Originality: This study adds new evidence to the literature regarding the effect of internal control regulations on managerial accounting behaviour. Practitioner/Policy implication: Our findings suggest that J-SOX may be effective in improving financial reporting quality although the procedures are relatively concise. Therefore, policy makers and accounting standard setters should consider not only strictness but also cost-effectiveness. Research limitation/Implications: We cannot rule out the possibility that factors other than J-SOX occurred during our study period affected our results.
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Park, Sorah. "Differential Effect Of The Sarbanes-Oxley Act On Individual And Institutional Investors." Journal of Applied Business Research (JABR) 32, no. 2 (2016): 517. http://dx.doi.org/10.19030/jabr.v32i2.9593.
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This study investigates the differential effect of the Sarbanes-Oxley Act of 2002 (“SOX”) on unsophisticated individual investors and sophisticated institutional investors. I examine the relationship between abnormal stock returns around quarterly earnings announcements before and after SOX and investor sophistication. Empirical test results show that SOX positively affected stock returns reaction around the quarterly earnings announcement, consistent with prior literature. However, the increased stock returns reaction in the post-SOX period appears to be unrelated to individual investors. I find that the impact of SOX on institutional investor reaction to earnings announcement is statistically significant, whereas individual investor reaction to earnings announcement is not affected by SOX. This suggests that institutional investors have improved on the extent to which earnings information is efficiently priced after SOX, but not individual investors. These findings are important because the differential effect of the accounting disclosure regulation on investors has received little attention in the literature.
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Ghani, WaQar, and Rajneesh Sharma. "Wealth Effects of CFO Turnover: Evidence from Post-Sarbanes-Oxley Act." Journal of Finance Issues 8, no. 2 (2010): 38–50. http://dx.doi.org/10.58886/jfi.v8i2.2341.
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This study investigates the impact of CFO turnover on shareholder wealth in the post-Sarbanes-Oxley Act period. Our tests are based on a sample of 244 CFO turnovers during the post-SOX (2003-2007) years. Our full and sub-sample empirical results show that market reaction to CFO turnover events was significantly negative for all departure reasons. Prior Pre-SOX research showed no significant market reaction around most CFO departure events with the exception of a sudden CFO departure event. Thus, our results indicate that SOX has influenced market participants’ perception of CFO turnover event as value relevant. We provide evidence that supports existing literature that CFO turnover is disciplinary in nature.
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Bismark, Kofi Owusu Sarfo, Yusheng Kong, Takyi Lydia, and Parker Quayson Bright. "Extension of Sarbanes-Oxley Act Provisions in the Public Financial Management in Ghana." International Journal of Management Sciences and Business Research 09, no. 03 (2020): 96–111. https://doi.org/10.5281/zenodo.4922384.
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<em>This study measures the relative importance of extending the Sarbanes-Oxley Act (SOX, 2002) provisions to the public financial management in Ghana. It targets at the possibility of adopting the SOX Act in the local government sector in Ghana. The survey targeted, government officials, specifically Public Sector Finance Officers and university lecturers with relevant knowledge in PFM, External Auditors and Accountants. The trend of the responses implies that apart from the introduction of an independent audit committee into the public sector; the participants mainly supports the provision of a public accounting oversight board. They recommend that the non-audit service should not pre-approved by the audit committee. We also found strong support for auditor independences rules similar to the SOX Act provisions. Whiles majority of lecturers believe that extending the SOX Act provision to Ghana’s PFM is not a means to an end, they believe that the PFM ACT (2016) Act 921 have enough provisions to deal with most systemic challenges in the local government sector in Ghana</em>
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Kwak, Wikil, Xiaoyan Cheng, and Jinlan Ni. "Predicting Bankruptcy After The Sarbanes-Oxley Act Using Logit Analysis." Journal of Business & Economics Research (JBER) 10, no. 9 (2012): 521. http://dx.doi.org/10.19030/jber.v10i9.7192.
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<span style="font-family: Times New Roman; font-size: small;"> </span><p style="margin: 0in 0.5in 0pt; text-align: justify; mso-pagination: none;" class="MsoBodyText"><span style="font-family: Times New Roman;"><span style="color: black; font-size: 10pt; mso-themecolor: text1;">Our study proposes </span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: KO;">firm bankruptcy prediction using </span><span style="color: black; font-size: 10pt; mso-themecolor: text1;">logit analysis a</span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: KO;">fter the passage of the Sarbanes-Oxley (SOX) Act </span><span style="color: black; font-size: 10pt; mso-themecolor: text1;">using </span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: KO;">2008-2009 U.S. </span><span style="color: black; font-size: 10pt; mso-themecolor: text1;">data.<span style="mso-spacerun: yes;"> </span>The results of our logit analysis show an 80% (90% with one year before bankruptcy data) prediction accuracy rate using financial </span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: KO;">and other </span><span style="color: black; font-size: 10pt; mso-themecolor: text1;">data from the 10-K report in the post-SOX period.</span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: KO;"><span style="mso-spacerun: yes;"> </span>This prediction rate is comparable to other data mining tools.<span style="mso-spacerun: yes;"> </span>Overall, our results show that, as compared to the </span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-fareast-font-family: Batang; mso-fareast-language: KO;">prediction rates documented by other bankruptcy studies before SOX,</span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-fareast-language: KO;"> firm bankruptcy prediction rates have improved since the passage of SOX.</span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-fareast-font-family: Batang; mso-fareast-language: KO;"> Our findings shed light on the benefits of SOX by providing evidence that legislation makes the financial reporting more informative. This study is important for regulators to implement public policy.<span style="mso-spacerun: yes;"> </span>Investors may be interested in our findings to better assess company risk when making portfolio decisions.<span style="mso-spacerun: yes;"> </span></span></span></p><span style="font-family: Times New Roman; font-size: small;"> </span>
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Brochet, Francois. "Information Content of Insider Trades before and after the Sarbanes-Oxley Act." Accounting Review 85, no. 2 (2010): 419–46. http://dx.doi.org/10.2308/accr.2010.85.2.419.
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ABSTRACT: This study examines the information content of Form 4 filings under the more timely disclosure regime introduced by Section 403 of the Sarbanes-Oxley Act of 2002 (SOX). Abnormal returns and trading volumes around filings of insider stock purchases are significantly greater after SOX than before. Abnormal trading volumes around filings of insider sales are also greater post-SOX, on average, but stock returns are not more negative. However, once controlling for pre-planned transactions, reporting lag, litigation risk, and news following insider trades, I find a negative association between returns around filings of insider sales and SOX. Overall, the evidence suggests that the prompt public disclosures about insider transactions mandated by the new rule are relevant to the pricing of securities. The results are also consistent with SOX and regulatory actions reducing the incentives to sell ahead of privately known negative news.
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Segovia, Joann, Carol M. Jessup, Marsha Weber, and Sheri Erickson. "Enriching AIS Courses With SOX Compliance Activities." AIS Educator Journal 5, no. 1 (2010): 1–24. http://dx.doi.org/10.3194/1935-8156-5.1.1.
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A very significant change to the accounting profession occurred in 2002 when the Sarbanes-Oxley Act of 2002 (SOX) was enacted. This legislation had a significant impact on corporations and their audit firms. The objective was to improve corporate governance and its quality of financial reporting to improve investor confidence. This paper provides instructors with a background on SOX and suggests readings and activities that reflect the requirements of SOX as it relates to the AIS environment and the analysis of internal controls. These activities can strengthen students' understandings of how corporations respond to the various reporting requirements of this Act.
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Bhabra, Gurmeet S., and Jacob Rooney. "Sarbanes-Oxley, agency conflicts and the marginal value of capital expenditure." Managerial Finance 46, no. 2 (2019): 237–53. http://dx.doi.org/10.1108/mf-10-2018-0471.
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Purpose The purpose of this paper is to examine the relationship between the strength of corporate governance and the value of firm-level investment policies following the passage of the Sarbanes–Oxley (SOX) Act of 2002 and the associated changes to the listing requirements of major stock exchanges. In particular the authors seek to examine potential changes in the market’s assessed value of capital expenditures after the passage of the SOX Act relative to before. Design/methodology/approach The authors employ a difference-in-difference methodology, centred on the year of the passage of the SOX Act to test for the role of governance on the marginal value of capital expenditures. Excess stock returns are calculated by subtracting Fama and French (1993) size and book-to-market portfolio value-weighted returns from the firms’ annual stock returns. Each firm is grouped into one of 25 size and book-to-market portfolios for each year in the sample, with size and the book-to-market ratio proxying for sensitivity to common risk factors in stock returns (Fama and French, 1993). Findings The authors find that markets responded to the change in governance brought about by the new regulation by altering the value of firm-level capital expenditures in a way that is generally consistent with predictions of agency theory. While the overall findings imply a reduction in agency conflicts post-SOX, there is some evidence that certain firms may have suffered excessive costs of compliance, while still others saw managers become excessively risk averse. Research limitations/implications The study has implications related to the efficacy of legislation. Cross-sectional variation in the effect of SOX on the marginal value of capital expenditures suggests that one-size-fits-all legislative approach can have both expected as well as unintended consequences. The study limits its analysis to examining the impact of three significant provisions of the Act. While, the value implications of the Act are largely captured by the selected three, a more comprehensive study could expand on the set of provisions studies to obtain a more granular level impact. Practical implications This research should add to the growing body of the literature examining the effect of SOX on firms’ real activities and decisions, as well as contribute to the debate on whether the Act was beneficial or costly to firms. With particular reference to the impact of capital expenditure on firm value, the research contributes to the sparse literature examining the contribution of capital expenditures to firm value and the role that agency conflicts play in this relationship. Additionally, this research adds to the growing body of the literature that examines the costs and benefits of the sweeping new regulations brought on by the adoption of SOX. Social implications Given the importance of investment policy for economic productivity and growth, the insights provided by findings in this research should benefit lawmakers both within the USA as well as in countries where corporate misconduct and fraud is a concern. Originality/value This is the first study that examines the impact of the SOX Act on the way capital markets value firm-level investment in capital expenditures. Since use of corporate resources by managers is fraught with agency conflicts, the role of SOX in potentially alleviating this conflict as revealed by the tests in this study are very valuable.
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Gao, Huasheng, and Jin Zhang. "SOX Section 404 and Corporate Innovation." Journal of Financial and Quantitative Analysis 54, no. 2 (2018): 759–87. http://dx.doi.org/10.1017/s0022109018000844.
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This paper exploits a quasi-natural experiment to investigate the relation between the Sarbanes–Oxley Act (SOX) of 2002 and corporate innovation: firms with a public float under $75 million can delay compliance with Section 404 of the act. We find a significant decrease in the number of patents and patent citations for firms that are subject to Section 404 compliance relative to firms that are not. This relation is more pronounced when firms are financially constrained and when firms face high litigation risk. Overall, our evidence suggests that SOX imparts real costs to the economy by decreasing corporate innovativeness.
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Lobo, Gerald J., and Jian Zhou. "Did Conservatism in Financial Reporting Increase after the Sarbanes-Oxley Act? Initial Evidence." Accounting Horizons 20, no. 1 (2006): 57–73. http://dx.doi.org/10.2308/acch.2006.20.1.57.
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In this paper, we investigate the change in managerial discretion over financial reporting following the Sarbanes-Oxley Act (hereafter SOX). We document an increase in conservatism in financial reporting following SOX and the resulting requirement by the SEC that financial statements be certified by firms' CEOs and CFOs. First, we find that firms report lower discretionary accruals after SOX than in the period preceding SOX. Second, based on the Basu (1997) measure of conservatism, we find that firms incorporate losses more quickly than gains when they report income in the post-SOX period. These results are obtained with alternative estimation and measurement approaches and after controlling for potentially confounding variables. This empirical evidence suggests that SOX and the resultant SEC certification requirement may have altered management's discretionary reporting behavior to make it more conservative.
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Chen, Fang, Jian Huang, and Han Yu. "Firm Risk and Proxy Fights: Evidence from SOX." Accounting and Finance Research 7, no. 2 (2018): 96. http://dx.doi.org/10.5430/afr.v7n2p96.
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The Sarbanes Oxley Act of 2002 (SOX) is documented to curb executive risk-taking and firm risk. Utilizing SOX as an exogenous shock on firm risk, we find that proxy fight threats are positively related to a firm’s total risk and idiosyncratic risk. Specifically, although firm risk generally decreases post-SOX, high proxy fight threats mitigate this change in firm risk. We also find that although firms adopt more conservative policies such as decreasing their leverage and payout post-SOX, these changes are mitigated by proxy fight threats. In sum, our findings indicate that proxy fights act as an external disciplinary mechanism, encourage executive risk-taking, and increase firm risk.
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Seino, Kosuke, and Fumiko Takeda. "Stock market reactions to the Japanese Sarbanes-Oxley act of 2006." Corporate Ownership and Control 7, no. 2 (2009): 126–36. http://dx.doi.org/10.22495/cocv7i2p10.
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This article investigates stock market reactions to announcements related to the introduction of the Financial Instruments and Exchange Law or the so-called Japanese Sarbanes-Oxley Act (J-SOX), which was enacted to reinforce corporate accountability and responsibility. We find that the announcements leading to the passage of the J-SOX raised stock prices of firms listed on the First Section of the Tokyo Stock Exchange. Another finding is that firms with a high ratio of foreign shareholders or leverage experienced more positive stock price reactions. By contrast, whether the firm was audited by Big 4 audit firms did not seem to matter to investors. In addition, large firms tended to have more negative stock price reactions than small firms.
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Hoitash, Rani, Udi Hoitash, and Jean C. Bedard. "Internal Control Quality and Audit Pricing under the Sarbanes-Oxley Act." AUDITING: A Journal of Practice & Theory 27, no. 1 (2008): 105–26. http://dx.doi.org/10.2308/aud.2008.27.1.105.
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This paper extends prior research on audit risk adjustment by examining the association of audit pricing with problems in internal control over financial reporting, disclosed under Sections 404 and 302 of the Sarbanes-Oxley Act [SOX]. While studies of auditors' responses to internal control risk provide mixed evidence, it is important to re-examine this issue using data on specific client problems not available prior to SOX. As a baseline, we first establish a strong association of audit fees with internal control problems disclosed in the first year of implementation of Section 404, consistent with prior research (e.g., Raghunandan and Rama 2006). We then address two issues on which prior results are contradictory. In a broadly based sample of accelerated filers, we find that audit pricing for companies with internal control problems varies by problem severity, when severity is measured either as material weaknesses versus significant deficiencies, or by nature of the problem. Also, while audit fees increase during the 404 period, our tests show less relative risk adjustment under Section 404 than under Section 302 in the prior year. Further examining intertemporal effects, we find that companies disclosing internal control problems under Section 302 continue to pay higher fees the following year, even if no problems are disclosed under Section 404. Overall, our findings provide detailed insight into audit risk adjustment during the initial period of SOX implementation.
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Ehisuoria E. Akhuemonkhan, Genevieve Okafor, Evelyn Gachui, Ifeoma Naibe, and Aniel K. Diala. "The impact of financial crime regulations on corporate governance: A critical analysis of U.S. SEC, PCAOB, and global anti-fraud policies." International Journal of Applied Research in Social Sciences 7, no. 4 (2025): 279–85. https://doi.org/10.51594/ijarss.v7i4.1878.
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Financial crimes such as fraud, corruption, and misreporting continue to threaten corporate integrity, investor confidence, and the stability of global financial markets. In response, regulatory bodies in the United States—particularly the Securities and Exchange Commission (SEC), the Public Company Accounting Oversight Board (PCAOB), and landmark legislation such as the Sarbanes-Oxley Act (SOX) and the Foreign Corrupt Practices Act (FCPA)—have implemented robust frameworks to strengthen corporate governance and fraud prevention. This paper critically analyzes how these U.S. financial crime regulations have transformed corporate oversight mechanisms, improved accountability, and shaped global compliance standards. It also examines how international anti-fraud policies increasingly align with U.S. practices, fostering cross-border regulatory synergy. Through a review of legal frameworks, enforcement cases, and corporate responses, this study highlights the positive influence of these regulations on internal controls, board governance, and ethical conduct in multinational corporations. The paper concludes by offering policy recommendations to enhance compliance effectiveness and promote ethical business practices in a dynamic global environment. Keywords: Financial Crime Regulations, Corporate Governance, Sec Compliance, PCAOB Oversight, Sarbanes-Oxley Act (Sox), Anti-Fraud Policies, Forensic Accounting, Regulatory Compliance, Risk Management, Global Financial Transparency.
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Chen, Sheng-Syan, and Chia-Wei Huang. "The Sarbanes-Oxley Act, Earnings Management, and Post-Buyback Performance of Open-Market Repurchasing Firms." Journal of Financial and Quantitative Analysis 48, no. 6 (2013): 1847–76. http://dx.doi.org/10.1017/s0022109014000040.
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AbstractWe examine how the Sarbanes-Oxley Act (SOX) affects pre-repurchase earnings management and its association with post-repurchase firm performance. Unlike prior pre-SOX studies, our post-SOX results indicate that open-market repurchasers do not engage in pre-buyback downward accrual-based earnings management. Audit committee independence, reforms in corporate governance structures, and changes in executives’ equity holdings prompted by SOX may explain the findings. Post-SOX, the significant negative association between pre-repurchase abnormal accruals and post-repurchase performance disappears, the market reaction to repurchase announcements becomes significantly less favorable, and there is no evidence of any shift away from accrual-based to real earnings management.
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Nourayi, Mahmoud M., Lawrence Kalbers, and Frank P. Daroca. "The Impact Of Corporate Governance And The Sarbanes-Oxley Act On CEO Compensation." Journal of Applied Business Research (JABR) 28, no. 3 (2012): 463. http://dx.doi.org/10.19030/jabr.v28i3.6962.
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This paper examines the effects of corporate governance on CEO compensation in light of regulatory controls introduced by the Sarbanes-Oxley Act of 2002 (SOX). The influence of economic and corporate governance variables on incentive-based CEO compensation are considered, using cross-section time-series panel data that includes multiple observations for the years 1999 to 2005. As expected, sales, firm performance (returns), and CEO age were found to positively affect the incentive components of CEO compensation. CEO duality, board size, and the percentage of outside directors had a significant influence on CEO compensation in the pre-SOX, but not post-SOX, period. The influences of these three variables in the pre-SOX period were not in the expected directions. Stratification of our sample into two groups by size reveals similarities and differences between smaller and larger firms. For both groups, economic determinants are more dominant than corporate governance variables as determinants of incentive-based CEO compensation. We find differences in the pattern and significance of variables between the smaller and larger firms, particularly for corporate governance variables, pre- and post-SOX. These results suggest that the effectiveness of corporate governance mechanisms may vary by size of company.
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Massoud, Marc, and Eunsup Daniel Shim. "Corporate governance, public accounting firms and multinational corporations: The US Sarbanes-Oxley Act perspective." Corporate Ownership and Control 3, no. 2 (2006): 159–64. http://dx.doi.org/10.22495/cocv3i2c1p1.
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The purpose of this paper is to review US corporate governance systems and to highlight the mandated roles of audit committee and external auditor within the SOX Act. In addition, it discusses requirements and implications of the SOX Act for the foreign accounting firms and multinational corporations. Finally this paper provides a perspective on improvement of corporate governance and financial integrity. In order to regain trust from the financial market, the SOX Act mandates (1) to improve auditor’s independence by reducing conflicts of interest; (2) to increase corporate financial reporting responsibility by requiring a CEO or a CFO certify accuracy of annual report; and (3) to enhance financial disclosures. It also significantly increase criminal penalty for non-compliance. The authors believe that the combination of strengthening auditor’s independence, increased corporate responsibility and severe penalty and restored corporate governance would create an environment that is intended by the SOX Act. Volker and Levitt (2004) put it very forceful way: “While there are direct money costs involved in good corporate governance, we believe that an investment in good corporate governance, professional integrity and transparency will pay dividends in the form of investor confidence, more efficient markets and more market participation for years to come.” We concur with them and believe that the SOX Act will help in restoring trust in corporate governance and improve financial integrity and quality of financial information. We also agree that the benefits of the SOX Act will outweigh the costs of compliance in the long-run.
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Krishnan, Gopal V., K. K. Raman, Ke Yang, and Wei Yu. "CFO/CEO-Board Social Ties, Sarbanes-Oxley, and Earnings Management." Accounting Horizons 25, no. 3 (2011): 537–57. http://dx.doi.org/10.2308/acch-50028.
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SYNOPSIS Prior research suggests that the efficacy of a formally independent member of the board of directors could be undermined by social ties with the CEO. In this study, we examine the relation between CFO/CEO-board social ties and earnings management over the 2000–2007 time period. Our results suggest that CFOs/CEOs picked more socially connected directors in the post-Sarbanes-Oxley Act (SOX) time period (possibly as a way out of the mandated independence requirements). Our results also suggest a positive relation between CFO/CEO-board social ties and earnings management. Still, the increase in managerial/board risk aversion since SOX appears to have negated the effect of social ties on earnings management in the post-SOX period. Board independence and financial reporting quality remain topics of ongoing interest. The study is important in advancing our understanding of the role of social ties in earnings management.
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Ragan, Joseph, Christopher Puccio, and Brandon Talisesky. "Accounting Control Technology Using SAP: A Case-Based Approach." American Journal of Business Education (AJBE) 7, no. 4 (2014): 349–60. http://dx.doi.org/10.19030/ajbe.v7i4.8846.
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The Sarbanes-Oxley Act (SOX) revolutionized the accounting and audit industry. The use of preventative and process controls to evaluate the continuous audit process done via an SAP ERP ECC 6.0 system is key to compliance with SOX and managing costs. This paper can be used in a variety of ways to discuss issues associated with auditing and testing of internal controls. A case study is provided to effectively teach SAP system controls in undergraduate/graduate courses in auditing and information systems.
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Vega, Jose G., Jan Smolarski, and Haiyan Zhou. "Sarbanes-Oxley: changes in risk premium and return volatility." Asian Review of Accounting 23, no. 1 (2015): 86–106. http://dx.doi.org/10.1108/ara-01-2014-0018.
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Purpose – The purpose of this paper is to examine if the enactment of Sarbanes-Oxley (SOX) resulted in lower risk premium and return volatility in the US stock markets. The paper examines the two components of excess return (total risk premium) separately: the amount of volatility (risk) and the unit price of risk (risk premium). Design/methodology/approach – The authors use a Component Generalized Autoregressive Conditional Heteroskedasticity approach to estimate the permanent and transitory component of share price volatility. The authors then use the predicted volatility to measure the unit price of risk and its changes due to the enactment of the SOX Act. Findings – The results regarding excess returns indicate that the implementation of SOX had a positive effect on the market. A positive effect means a steady decrease in required excess rates of returns due to the implementation of SOX. The years leading up to the implementation of SOX are characterized by significant sources of uncertainty. Around the implementation of SOX, the authors observe a long-term reduction in return volatility (risk), and a temporary reduction in the unit price of risk. Subsequent to the implementation, investors gained confidence in the effectiveness of internal controls over the financial reporting process, which helped in reducing the information risk and, therefore, the risk premium. Research limitations/implications – The authors find that total risk premium decreased over extended periods. The authors conclude that the enactment of SOX helped in reducing the uncertainty in the US capital market resulting in a reduction of total risk premiums and hence the cost of capital. Practical implications – The results have implications for policy makers, investors and researchers in general and those in the US markets in particular. The results are important because it allows policy makers and regulators to improve on how they design and implement accounting, market and finance regulations and reforms. Social implications – The study shows how financial markets react to regulations and the authors also provide information on investors’ reaction as firms adjust to changing regulations. The results of the study allows regulators to potentially use a more refined or targeted approach when introducing new regulations. It also allows investors to make informed investment decisions as they relate to risk premium requirements, which in turn may allow investors to allocate capital more efficiently. Originality/value – There are many studies concerning the enactment of SOX but few, if any, existing studies examine the original intent of SOX: to calm the US equity markets and restore market confidence from a return volatility perspective. The results have implications for policy makers, investors and researchers in general and those in the US markets in particular. The results are important because it allows policy makers and regulators to improve on how they design and implement accounting, market and finance regulations and reforms.
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Ettredge, Michael L., Susan Scholz, and Chan Li. "Audit Fees and Auditor Dismissals in the Sarbanes-Oxley Era." Accounting Horizons 21, no. 4 (2007): 371–86. http://dx.doi.org/10.2308/acch.2007.21.4.371.
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The accounting scandals and Sarbanes-Oxley Act (SOX) of 2002 resulted in large increases in required audit work, and corresponding increases in audit fees for public companies. This study provides early evidence regarding the relationship between higher audit fees, both levels and changes, and auditor dismissals in the period immediately subsequent to the passage of SOX. We find that clients paying higher fees are more likely to dismiss their auditors. We also find that dismissals are associated with smaller companies, companies with going-concern reports, and companies that later reported material weaknesses in their internal controls. Among dismissing clients, smaller Big 4 clients, paying higher fees, tend to hire non-Big 4 successor auditors. This result holds when auditors are divided into Big 4, national, and local tiers. We also find evidence that dismissing clients, in particular clients hiring new non-Big 4 auditors, experience smaller fee increases than nonswitching clients in the following year. These results are consistent with the notion that in the immediate post-SOX period, some companies dismissed their auditors in expectation of lower fees from the succeeding auditor.
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Basile, Anthony, Sheila Handy, and Felisha N. Fret. "A Retrospective Look at the Sarbanes-Oxley Act of 2002- Has it accomplished its original purpose?" Journal of Applied Business Research (JABR) 31, no. 2 (2015): 585. http://dx.doi.org/10.19030/jabr.v31i2.9155.
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As a result of notable frauds including Enron, WorldCom and Waste Management, the United States Congress enacted the Sarbanes-Oxley Act of 2002 (SOX). The Act would forever change the accounting profession. After a little more than a decade, publicly traded companies have been able to create and implement policies and procedures to ensure compliance with the Act, specifically the provisions set forth in Section 404. Since all public companies have implemented SOX compliance together with other regulations imposed by the Internal Revenue Service and other regulatory agencies into their normal reporting routines, management of these companies have realized further benefits associated with SOX compliance. Because of these reported benefits many private companies have begun to voluntarily implement SOX-like policies and procedures into their own internal framework. This paper will discuss the perceptions of the enactment and implementation of the Act, the associated benefits derived from SOX compliance and reasons why private companies have begun voluntarily adopting SOX-like policiesprocedures and strategies.
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Hughen, Linda, Mahfuja Malik, and Eunsup Daniel Shim. "The impact of Sarbanes–Oxley and Dodd–Frank on executive compensation." Journal of Applied Accounting Research 20, no. 3 (2019): 243–66. http://dx.doi.org/10.1108/jaar-01-2018-0015.
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Purpose The recent economic and political focus on rising income inequality and the extent of government intervention into pay policies has renewed the interest in executive compensation. The purpose of this paper is to examine the impact of changing regulatory landscapes on executive pay and its components. Design/methodology/approach This study examines a recent 23-year period divided into three distinct intervals separated by two major regulatory changes, the Sarbanes–Oxley Act (SOX) and the Dodd–Frank Act. Bonus, long-term and total compensation are separately modeled as a function of each regulatory change while controlling for firm size, performance and year. The model is estimated using panel data with firm fixed effects. An industry analysis is also conducted to examine sector variations. Findings Total compensation increased 29 percent following SOX and 21 percent following Dodd–Frank, above what can be explained by size, firm performance and time. Total compensation increased following both SOX and Dodd–Frank in all industries except for the financial services industry where total compensation was unchanged. Results are robust to using smaller windows around each regulation. Research limitations/implications This study does not seek to determine whether executive compensation is at an optimal level at any point in time. Instead, this study focuses only on the change in executive compensation after two specific regulations. Originality/value The debate over the extent to which the government should intervene with executive compensation has become a frequent part of political and non-political discourse. This paper provides evidence that over the long-term, regulation does not curtail executive compensation. An important exception is that total compensation was restrained for financial services firms following the Dodd–Frank Act.
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Sobowale, Adedamola, Sandra Orobosa Ikponmwoba, Onyeka Kelvin Chima, Onyinye Jacqueline Ezeilo, Benjamin Monday Ojonugwa, and Michael Olumuyiwa Adesuyi. "A Conceptual Framework for Integrating SOX-Compliant Financial Systems in Multinational Corporate Governance." International Journal of Multidisciplinary Research and Growth Evaluation 1, no. 2 (2020): 88–98. https://doi.org/10.54660/.ijmrge.2020.1.2.88-98.
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This review presents a conceptual framework for integrating Sarbanes-Oxley Act (SOX)-compliant financial systems within multinational corporate governance structures. The Sarbanes-Oxley Act, enacted in 2002, significantly reshaped corporate governance and financial reporting in the United States, introducing stringent requirements for internal controls, financial transparency, and accountability. While initially designed for U.S. companies, the global expansion of multinational corporations (MNCs) has necessitated a broader application of SOX compliance across various jurisdictions. The review explores the challenges that multinational corporations face when integrating SOX-compliant financial systems, particularly the diverse regulatory environments, differences in financial reporting standards, and the complexity of aligning local subsidiaries with a unified compliance framework. It emphasizes the critical role of internal control systems, financial reporting requirements, audit trails, and risk management in ensuring compliance with SOX regulations. Furthermore, the review highlights how technology solutions such as Enterprise Resource Planning (ERP) systems, automation tools, and centralized financial management platforms can streamline compliance processes across multiple jurisdictions. A significant aspect of the conceptual framework is the strategic alignment of SOX compliance with corporate governance structures, ensuring that compliance is not a standalone function but embedded into the core governance practices of multinational organizations. This framework proposes a holistic approach, incorporating cross-functional collaboration among finance, legal, and IT departments to ensure effective implementation. Through case studies and best practices, the review illustrates successful SOX integration strategies and the lessons learned from multinational corporations that have navigated the complexities of compliance. Lastly, the review discusses future research areas and the potential impact of emerging technologies like artificial intelligence and blockchain in enhancing SOX compliance in a rapidly evolving global business environment.
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Pan, Lee-Hsien, Shuo Chen, Chieh-Chung Wu, and K. C. Chen. "Corporate Governance and Firm Performance: Evidence From the ADRs of Tiger Cub Economies." International Journal of Accounting and Financial Reporting 9, no. 1 (2019): 432. http://dx.doi.org/10.5296/ijafr.v9i1.14578.
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This paper examines the effects of cross listing and Sarbanes-Oxley Act (SOX) on corporate governance and firm performance of the cross-listed firms from four Tiger Cub Economics: Indonesia, Malaysia, Philippines, and Thailand. We find that these non-U.S. firms that list their shares as American Depositary Receipts (ADRs) experience an improvement in corporate governance and a decrease in firm performance after issuing ADRs in the U.S. However, SOX appears to be effective in enhancing firm performance for these ADRs, though it has little impact on improving corporate governance.
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Merkelbach, A. P. N. "De IT Dependent Manual Control; een nog te verkennen gebied binnen de auditing." Maandblad Voor Accountancy en Bedrijfseconomie 80, no. 7/8 (2006): 352–57. http://dx.doi.org/10.5117/mab.80.20826.
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Het fenomeen IT Dependent Manual Control is binnen de accountancy een bestaand, maar beperkt ingevuld begrip. Door de introductie van de Sarbanes-Oxley Act (SOx) in 2002 is de IT Dependent Manual Control meer in de schijnwerpers komen te staan. De internationale auditing standaarden geven echter weinig houvast omtrent deze materie, waardoor ook accountants moeite hebben met dit fenomeen. Dit artikel heeft als doel om te komen tot een verheldering van de begripsvorming en geeft tevens een aanpak om te komen tot de uiteindelijke implementatie van de IT Dependent Manual Control voor SOx.
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Burrowes, Ashley, and Ann Hendricks. "Independent financial experts: From wished for to wistful thinking." Managerial Finance 31, no. 9 (2005): 52–62. http://dx.doi.org/10.1108/03074350510769866.
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The aftermath of the Enron collapse included Congressional legislation known as the Sarbanes‐Oxley Act (SOX), which was rushed into law on July 29, 2002, by President Bush. This legislation, aimed at restoring confidence in the financial markets, addresses many aspects of corporate governance. This article addresses the audit committee provisions of SOX, particularly the requirements for independent membership and financial expertise. The article outlines the legislative requirements and then discusses the possible effects of this ‘patch‐up’. Is it too little too late and how long will the patch last?
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Merkelbach, A. P. N. "De IT Dependent Manual Control; een nog te verkennen gebied binnen de auditing." Maandblad Voor Accountancy en Bedrijfseconomie 80, no. (7/8) (2006): 352–57. https://doi.org/10.5117/mab.80.20826.
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Het fenomeen IT Dependent Manual Control is binnen de accountancy een bestaand, maar beperkt ingevuld begrip. Door de introductie van de Sarbanes-Oxley Act (SOx) in 2002 is de IT Dependent Manual Control meer in de schijnwerpers komen te staan. De internationale auditing standaarden geven echter weinig houvast omtrent deze materie, waardoor ook accountants moeite hebben met dit fenomeen. Dit artikel heeft als doel om te komen tot een verheldering van de begripsvorming en geeft tevens een aanpak om te komen tot de uiteindelijke implementatie van de IT Dependent Manual Control voor SOx.
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Fan, Yangyang, Chan Li, and K. Raghunandan. "Is SOX 404(a) Management Internal Control Reporting an Effective Alternative to SOX 404(b) Internal Control Audits?" AUDITING: A Journal of Practice & Theory 36, no. 3 (2017): 71–89. http://dx.doi.org/10.2308/ajpt-51669.
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SUMMARY Section 404 of the Sarbanes-Oxley Act (SOX; U.S. House of Representatives 2002) continues to be controversial. Using samples of Securities and Exchange Commission (SEC) registrants with market capitalizations of less than $150 million, we find that non-accelerated filers have a significantly larger reduction in the likelihood of material misstatements, discretionary revenues, and discretionary accruals compared to smaller accelerated filers after non-accelerated filers became subject to the requirements of Section 404(a). Our findings are consistent with the argument that management reporting on internal controls (Section 404(a)) may be a cost-effective alternative to internal control audits (Section 404(b)) for smaller U.S. public companies.
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Iyer, Venkataraman M., and Ann L. Watkins. "Adoption of Sarbanes-Oxley Measures by Nonprofit Organizations: An Empirical Study." Accounting Horizons 22, no. 3 (2008): 255–77. http://dx.doi.org/10.2308/acch.2008.22.3.255.
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SYNOPSIS: This paper reports the results of a survey of 215 nonprofit organizations to determine the degree to which these organizations have voluntarily adopted provisions of the Sarbanes-Oxley Act of 2002 (SOX). The authors believe that this research is timely and important as several states are considering implementing regulation that would have implications for stricter accountability measures for nonprofit organizations. Results indicate that many of the nonprofits in this survey have either already adopted governance measures similar to those prescribed by SOX or are in the process of doing so. The regression results indicate that size of budget, size of the board of directors, and proportion of independent members on the board are significantly related to the presence of an audit committee. Organizations engaging external or internal auditors are more likely to have a code of conduct and have periodic assessments of internal controls. The presence of an internal audit function is also significantly related to management certification of financial reports. The regression analysis on a composite SOX measure (which was calculated by summing the responses to questions on adoption of an audit committee, code of conduct, whistleblower protection, management certification of financial reports, and periodic assessments of internal controls) indicates that the presence of an external and/or an internal audit is significantly related to the adoption of such SOX measures.
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Arnold, Vicky, Tanya S. Benford, Joseph Canada, John R. Kuhn, and Steve G. Sutton. "The Unintended Consequences of Sarbanes-Oxley on Technology Innovation and Supply Chain Integration." Journal of Emerging Technologies in Accounting 4, no. 1 (2007): 103–21. http://dx.doi.org/10.2308/jeta.2007.4.1.103.
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This paper reports the results of a series of case studies conducted to explore the impact of the Sarbanes-Oxley Act of 2002 on the performance of small and medium-sized enterprises (SMEs). This issue is critical as the SEC and the PCAOB continue to defend the requirement that SMEs adhere to the internal control reporting requirements of Section 404 in the Act, albeit at a revised level of expectation focusing on more of a top-down risk-based approach. Cross-sectional case study data is used to explore the impacts of SOX on SMEs adopting organizational theories as a lens for observing behavior and outcomes. The results of the study confirm that there are both benefits and costs associated with SOX compliance. All of the organizations studied experienced substantial improvements in enterprise risk management approaches. However, the level of difficulty experienced by the various organizations in implementing SOX requirements was highly variable and could be traced back to the underlying factors in structural inertia theory: size, complexity, experience with change, experience with strict controls, and adaptability. Perhaps the most important finding is that SOX does impact organizational flexibility to various degrees as predicted by theory; and this impact can in turn affect production cycle times, information technology investment, supply chain performance, and ultimately, market competitiveness.
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Asthana, Sharad C., and Jeff P. Boone. "Abnormal Audit Fee and Audit Quality." AUDITING: A Journal of Practice & Theory 31, no. 3 (2012): 1–22. http://dx.doi.org/10.2308/ajpt-10294.
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SUMMARY This study tests the hypotheses that below-normal audit fees signal important nuances in the balance of bargaining power between the auditor and the client, and that such power may ultimately influence audit quality. We find that audit quality, proxied by absolute discretionary accruals and meeting or beating analysts' earnings forecasts, declines as negative abnormal audit fees increase in magnitude, with the effect amplified as proxies for client bargaining power increase. We find that this effect is dampened in years following the Sarbanes-Oxley Act (SOX), suggesting that SOX was effective in enhancing auditor independence.
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Cohen, Daniel A., Aiyesha Dey, and Thomas Z. Lys. "Real and Accrual-Based Earnings Management in the Pre- and Post-Sarbanes-Oxley Periods." Accounting Review 83, no. 3 (2008): 757–87. http://dx.doi.org/10.2308/accr.2008.83.3.757.
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We document that accrual-based earnings management increased steadily from 1987 until the passage of the Sarbanes-Oxley Act (SOX) in 2002, followed by a significant decline after the passage of SOX. Conversely, the level of real earnings management activities declined prior to SOX and increased significantly after the passage of SOX, suggesting that firms switched from accrual-based to real earnings management methods after the passage of SOX. We also document that the accrual-based earnings management activities were particularly high in the period immediately preceding SOX. Consistent with these results, we find that firms that just achieved important earnings benchmarks used less accruals and more real earnings management after SOX when compared to similar firms before SOX. In addition, our analysis provides evidence that the increases in accrual-based earnings management in the period preceding SOX were concurrent with increases in equity-based compensation. Our results suggest that stock-option components provide a differential set of incentives with regard to accrual-based earnings management. We document that while new options granted during the current period are negatively associated with income-increasing accrual-based earnings management, unexercised options are positively associated with income-increasing accrual-based earnings management.