Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5107809 | Research in Accounting Regulation | 2016 | 10 Pages |
Abstract
We examine the stock market reaction to the SEC announcement to permanently exempt non-accelerated filers from compliance with Section 404(b) of the Sarbanes-Oxley Act. Mandatory compliance with auditor attestation under Section 404(b) is highly controversial. Using a sample of non-accelerated issuers for 2006-2011, we find a negative market reaction to the November 4, 2009 exemption announcement. However, most of the negative returns accrue to non-accelerated filers that do not voluntarily comply with Section 404(b), suggesting that auditor attestation enhances firm value. The use of a Big 4 auditor, strong analyst following, and superior internal controls over financial reporting (ICFR) are associated with positive/less negative market responses. Voluntary compliers with Section 404(b) are more likely to have a Big 4 auditor, stronger analyst coverage, effective ICFR, stronger firm performance and lower information asymmetry. Our results are consistent with firms using voluntary compliance with SOX 404(b) as a signal of superior operating performance and ICFR quality to overcome information asymmetry and therefore mitigate the negative valuation impact of the permanent exemption from auditor attestation.
Related Topics
Social Sciences and Humanities
Business, Management and Accounting
Accounting
Authors
Kareen E. Brown, Fayez A. Elayan, Jingyu Li, Emad Mohammad, Parunchana Pacharn, Zhefeng Frank Liu,