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The Sarbanes‐Oxley Act of 2002 and Capital‐Market Behavior: Early Evidence *
Author(s) -
Jain Pankaj K.,
Rezaee Zabihollah
Publication year - 2006
Publication title -
contemporary accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.769
H-Index - 99
eISSN - 1911-3846
pISSN - 0823-9150
DOI - 10.1506/2gwa-mbpj-l35d-c4k6
Subject(s) - sarbanes–oxley act , accounting , legislature , capital market , business , order (exchange) , accountability , capital (architecture) , compliance (psychology) , companies act , economics , monetary economics , corporate governance , finance , law , political science , corporate law , audit , social psychology , psychology , archaeology , history
The Sarbanes‐Oxley Act of 2002 (“the Act”) was enacted in response to numerous corporate and accounting scandals. It aims to reinforce corporate accountability and professional responsibility in order to restore investor confidence in corporate America. This study examines the capital‐market reaction to the Act and finds a positive (negative) abnormal return at the time of several legislative events that increased (decreased) the likelihood of the passage of the Act. We interpret this finding as evidence supporting the notion that the Act is wealth‐increasing in the sense that its induced benefits significantly outweigh its imposed compliance costs. We also find that the market reaction is more positive for firms that are more compliant with the provisions of the Act prior to its enactment.