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The Effect of SOX Section 404: Costs, Earnings Quality, and Stock Prices
Author(s) -
ILIEV PETER
Publication year - 2010
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2010.01564.x
Subject(s) - business , exploit , float (project management) , earnings , audit , section (typography) , natural experiment , accounting , stock (firearms) , quality (philosophy) , monetary economics , financial system , finance , economics , engineering , mechanical engineering , philosophy , statistics , computer security , management , mathematics , epistemology , computer science , advertising
This paper exploits a natural quasi‐experiment to isolate the effects that were uniquely due to the Sarbanes–Oxley Act (SOX): U.S. firms with a public float under $75 million could delay Section 404 compliance, and foreign firms under $700 million could delay the auditor's attestation requirement. As designed, Section 404 led to conservative reported earnings, but also imposed real costs. On net, SOX compliance reduced the market value of small firms.