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Author: Jana Hranaiova
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
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Book Description
We examine changes in the market's response to financial statement restatement announcements during the Sarbanes-Oxley (SOX) era. We define this era as beginning with the U.S. Department of Justice initiation of a criminal investigation into the collapse of Enron, and its attendant loss of billions of dollars of shareholder value, through the November 15, 2004, requirement that all U.S. companies with market capitalizations over $75 million must comply with SOX Section 404, which deals with corporate internal controls over financial reporting We divided the Sarbanes-Oxley era into pre- and post-SOX periods, with the dividing line concurrent with the signing of the Sarbanes-Oxley Act into law on July 30, 2002. The comparison of pre- and post-SOX periods shows that post-SOX, the negative impact on companies announcing restatements is reduced 71 percent on average (as measured by the cumulative abnormal return on days 0 and 1) and the positive market response to announced restatements is reduced by 33 percent. This translates into a net reduction in lost market value of $207 million per restatement announcement or $74.4 billion in total market value for the two-day announcement event window. We also find that this reduction is not due to the diluting effects of the increased number of statistically insignificant post-SOX market reactions to restatement announcements. Finally, our results indicate that after SOX became law, post-announcement abnormal returns exhibit statistically significant lower volatility and the trend in statistically insignificant market responses to restatement announcements no longer declines, thus indicating less uncertainty on the part of investors regarding the announcements of restating companies, and perhaps because investors believe the disclosed information conveyed by the restated financials is timelier and of higher quality.
Author: Jana Hranaiova
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
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Book Description
We examine changes in the market's response to financial statement restatement announcements during the Sarbanes-Oxley (SOX) era. We define this era as beginning with the U.S. Department of Justice initiation of a criminal investigation into the collapse of Enron, and its attendant loss of billions of dollars of shareholder value, through the November 15, 2004, requirement that all U.S. companies with market capitalizations over $75 million must comply with SOX Section 404, which deals with corporate internal controls over financial reporting We divided the Sarbanes-Oxley era into pre- and post-SOX periods, with the dividing line concurrent with the signing of the Sarbanes-Oxley Act into law on July 30, 2002. The comparison of pre- and post-SOX periods shows that post-SOX, the negative impact on companies announcing restatements is reduced 71 percent on average (as measured by the cumulative abnormal return on days 0 and 1) and the positive market response to announced restatements is reduced by 33 percent. This translates into a net reduction in lost market value of $207 million per restatement announcement or $74.4 billion in total market value for the two-day announcement event window. We also find that this reduction is not due to the diluting effects of the increased number of statistically insignificant post-SOX market reactions to restatement announcements. Finally, our results indicate that after SOX became law, post-announcement abnormal returns exhibit statistically significant lower volatility and the trend in statistically insignificant market responses to restatement announcements no longer declines, thus indicating less uncertainty on the part of investors regarding the announcements of restating companies, and perhaps because investors believe the disclosed information conveyed by the restated financials is timelier and of higher quality.
Author: Orice Williams
Publisher: DIANE Publishing
ISBN: 1422309177
Category :
Languages : en
Pages : 211
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Book Description
In 2002, it was reported that the number of restatement announcements due to financial reporting fraud &/or accounting errors grew significantly between Jan. 1997 & June 2002, negatively impacting the restating companies¿ market capitalization by billions of dollars. The author was asked to update key aspects of the 2002 report. This report discusses: (1) the number of, reasons for, & other trends in restatements; (2) the impact of restatement announcements on the restating companies¿ stock costs & what is known about investors¿ confidence in U.S. capital markets; & (3) regulatory enforcement actions involving accounting- & audit-related issues. Includes recommendations. Charts & tables.
Author: Ya Fang Wang
Publisher:
ISBN:
Category :
Languages : en
Pages : 53
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Book Description
We investigate the U.S. stock market's reactions to companies' restatements before and after SOX during a period from 1997 to 2005. This paper is motivated by the inconsistency between the targeted goal of SOX to improve financial reporting quality (proxied by the occurrence of restatements) and the ever-increasing trend in restatements after the passage of SOX. We focus on companies' voluntary restatements because they are more susceptible to the numerous provisions imposed by SOX on top management's misconducts, audit committees, and internal controls over financial reporting. We propose that, in examining the impacts of SOX on the association between restatements and stock prices, it is the years being restated that are of particular importance to the market participants rather than the announcement dates. We base our argument on a game's perspective that, if SOX is effective, taking as a package, in motivating high-quality financial reporting, companies shall be less willing to restate financial statements issued after SOX because market participants may consider such restatements as signals of non-compliance with SOX. In contrast, companies may be more willing to restate financial statements issued before SOX because market participants may regard such restatements as signals of enhanced internal controls and improved corporate governance. Using the years being restated to classify restatements into pre-SOX and post-SOX periods, we find that the well-documented increase in restatements after SOX (which are classified using the announcement dates) disappears. Instead, we observe a sharp decrease in restatements that are announced after SOX restating financial reports issued after SOX. Notably, we find that most of the restatements announced after SOX are made mainly to restate quarterly financials issued before SOX. After controlling for the self-selection bias resulting from voluntary restatements, we further show that market participants can distinguish between post-SOX restatements that restate financial statements issued before and after SOX, and react differently by focusing on different restatement characteristics. Overall, the empirical results support our conjecture that companies and market participants interact strategically toward restatements announced after SOX.
Author: U S Government Accountability Office (G
Publisher: BiblioGov
ISBN: 9781289167622
Category :
Languages : en
Pages : 220
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Book Description
The U.S. Government Accountability Office (GAO) is an independent agency that works for Congress. The GAO watches over Congress, and investigates how the federal government spends taxpayers dollars. The Comptroller General of the United States is the leader of the GAO, and is appointed to a 15-year term by the U.S. President. The GAO wants to support Congress, while at the same time doing right by the citizens of the United States. They audit, investigate, perform analyses, issue legal decisions and report anything that the government is doing. This is one of their reports.
Author: Somnath Das
Publisher:
ISBN:
Category :
Languages : en
Pages : 50
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Book Description
Using financial restatements as the contextual setting, we examine whether the accounting expertise of board committees affects the consequences of financial reporting quality. We analyze both short-term consequences--stock market reactions surrounding restatement announcements, and long-term consequences--the incidence of SEC Accounting and Auditing Enforcement Actions (AAERs), and CEO and CFO turnover after restatements. Our results show that the presence of audit committee members with accounting expertise moderates the consequences of restatements, resulting in less negative stock market reactions and a lower probability of CEO turnover. In contrast, the audit committee's non-accounting financial expertise increases the likelihood of AAERs. For the compensation committee, we find that accounting expertise reduces the probability of CEO turnover, while non-accounting financial expertise exacerbates the negative stock returns around restatement announcements and increases the probability of AAER. In the post Sarbanes Oxley Act (SOX) period, restatements have resulted in less severe consequences while companies have increased their propensity to hire accounting experts. on the board. Correspondingly, we document that the moderating effects of accounting expertise become less significant, in part because the moderating effects are offset by the changed investor expectations. Overall, our results suggest that accounting expertise of board committees helps mitigate the negative consequences of restatements.
Author: United States. Securities and Exchange Commission
Publisher:
ISBN:
Category : Securities
Languages : en
Pages : 942
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Book Description
Author: Haidan Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 36
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Book Description
The Sarbanes-Oxley Act of 2002 (SOX) is the most important legislation affecting corporate financial reporting enacted in the United States since the 1930s. Its purpose is to improve the accuracy and reliability of accounting information reported to investors. We examine stock price reactions to legislative events surrounding SOX, and focus on whether such stock price effects are related cross-sectionally to the extent firms had managed their earnings. Our univariate results indicate significantly positive abnormal stock returns associated with SOX events, and our primary analyses reveal considerable evidence of a positive relation between SOX event stock returns and extent of earnings management. These results are consistent with investors anticipating that SOX would constrain earnings management and enhance the quality of financial statement information more, the more firms had managed their earnings.
Author:
Publisher: DIANE Publishing
ISBN: 1428944737
Category :
Languages : en
Pages : 272
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Book Description
Author: Joshua Ronen
Publisher: Springer Science & Business Media
ISBN: 0387257713
Category : Business & Economics
Languages : en
Pages : 587
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Book Description
This book is a study of earnings management, aimed at scholars and professionals in accounting, finance, economics, and law. The authors address research questions including: Why are earnings so important that firms feel compelled to manipulate them? What set of circumstances will induce earnings management? How will the interaction among management, boards of directors, investors, employees, suppliers, customers and regulators affect earnings management? How to design empirical research addressing earnings management? What are the limitations and strengths of current empirical models?
Author:
Publisher:
ISBN:
Category : Securities
Languages : en
Pages : 1312
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Book Description
