News announcement effects of compliance with section 404 of SOX: evidence from non-accelerated filers

Khedmati, Mehdi and Navissi, Farshid and Shams, Syed and Vinkler, Daniel (2015) News announcement effects of compliance with section 404 of SOX: evidence from non-accelerated filers. Journal of Contemporary Accounting & Economics, 11 (3). pp. 231-244. ISSN 0165-4101

Abstract

This study examines the effects of Section 404 of the Sarbanes–Oxley Act of 2002 (SOX) news announcements on a non-accelerated filer's levels of information asymmetry proxied by bid–ask spread. We find that, on average, the information asymmetry decreases (increases) after the announcements of compliance (deferral of compliance) with Section 404 of SOX. While a deferral announcement delays incurring the cost of compliance with Section 404, it signals lack of disclosure of relevant price sensitive information about the effectiveness of internal control systems, leading to higher levels of information asymmetry. Consistently, we find that, on average, prices increase (decrease) in response to the announcements signaling compliance (deferral of compliance) with Section 404 of SOX. Additionally, the results from cross-sectional analyses of abnormal returns indicate that changes in information asymmetry are priced by investors, whereas firm-specific estimates of cost of compliance with Section 404 do not appear to play a significant role in securities.


Statistics for USQ ePrint 28129
Statistics for this ePrint Item
Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Permanent restricted access to published version in accordance with the copyright policy of the publisher.
Faculty / Department / School: Current - Faculty of Business, Education, Law and Arts - School of Commerce
Date Deposited: 22 Apr 2016 05:07
Last Modified: 28 Jul 2016 01:10
Uncontrolled Keywords: information asymmetry; abnormal returns; Sarbanes–Oxley Act; Securities and Exchange Commission; Section 404 of SOX; non-accelerated filers
Fields of Research : 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150201 Finance
Socio-Economic Objective: E Expanding Knowledge > 97 Expanding Knowledge > 970115 Expanding Knowledge in Commerce, Management, Tourism and Services
Identification Number or DOI: 10.1016/j.jcae.2015.07.003
URI: http://eprints.usq.edu.au/id/eprint/28129

Actions (login required)

View Item Archive Repository Staff Only