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Firm Characteristics and Stock Price
Author(s) -
Rezee Zabihollah,
Espahbodi Reza,
Espahbodi Pouran,
Espahbodi Hassan
Publication year - 2012
Publication title -
abacus
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.632
H-Index - 45
eISSN - 1467-6281
pISSN - 0001-3072
DOI - 10.1111/j.1467-6281.2012.00377.x
Subject(s) - business , stock (firearms) , stock price , monetary economics , debt , stock market , financial system , economics , finance , mechanical engineering , paleontology , horse , series (stratigraphy) , engineering , biology
This study examines the stock price reaction to the internal control reporting required under S ection 404 of the S arbanes‐ O xley A ct of 2002 for three distinct groups of firms. After controlling for general stock price movements, we find that stock returns are most negative for firms that delay filing of their internal control reports, continue to be negative for firms with ineffective internal controls, and are positive for firms with effective internal controls. The decrease in stock prices of the first two groups is more pronounced for those with a lower return on assets, higher growth rate in sales, and no prior disclosure of their internal controls weaknesses. Our results indicate that market participants value the reliability of financial information ensuing from S ection 404 compliance, irrespective of firm size and debt proportion. Thus, regulators and policymakers worldwide should consider mandating comparable SOX 404 compliance for all publicly held companies to improve the accuracy and reliability of financial reports.