Exploring Sarbanes–Oxley’s effect on attitudes, perceptions of norms, and intentions to commit financial statement fraud from a general deterrence perspective

This paper uses an experiment to examine how deterrence mechanisms within the Sarbanes–Oxley Act’s (SOX) Sections 404 and 906 influence the fraudulent financial reporting behavior of individuals. The results indicate that the threat of potential jail time can be an effective mechanism for reducing financial statement fraud, but its effectiveness is limited and influenced by a wide range of social, environmental, and demographic factors. The findings show that the incremental increase in potential jail time imposed by SOX creates little deterrence beyond mechanisms that were in place pre-SOX. The findings also reveal that the effect of jail time is primarily a function of economic consequences, such as lost career opportunities that are created from serving just a minimal amount of time in jail. The results should be of interest to regulators and practitioners wanting to understand how SOX-based deterrence mechanisms can influence individual behavior. The results contribute to the general deterrence theory literature by showing how the effect of deterrence mechanisms on illicit behavior can be influenced by social, environmental, and demographic factors.