Open AccessCredit Ratings, Cost Of Debt, And Internal Control Disclosures: A Comparison Of SOX 302 And SOX 404
Author(s) -
Aaron D. Crabtree,
John J. Maher
Publication year - 2012
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.149
H-Index - 22
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v28i5.7231
Subject(s) - debt , control (management) , credit rating , business , accounting , audit , actuarial science , monetary economics , economics , finance , management
We compare the effects of SOX 302 and SOX 404 mandated internal control system disclosures on firm credit ratings, changes in credit ratings, and firm cost of debt. We find results consistent with the interpretation that disclosure of firm internal control deficiencies provides incremental information to credit analysts which is negatively associated with a firms credit rating, and positively associated with cost of debt. Additionally, we find that while disclosures under SOX 302 are negatively related to credit ratings, this effect largely disappears once prior 404 disclosures are considered. Importantly, the impact of 404 internal control disclosures is significant regardless of past 302 disclosures. These results contribute positively to the public policy debate concerning the efficacy of auditor attested internal control evaluations required by SOX 404.