News announcement effects of compliance with section 404 of SOX: Evidence from non-accelerated filers

Mehdi Khedmati, Farshid Navissi, Syed Shams and Daniel Vinkler

Journal of Contemporary Accounting and Economics, 2015, vol. 11, issue 3, 231-244

Abstract: This study examines the effects of Section 404 of the Sarbanes–Oxley Act of 2002 (SOX) news announcements on a non-accelerated filer's levels of information asymmetry proxied by bid–ask spread. We find that, on average, the information asymmetry decreases (increases) after the announcements of compliance (deferral of compliance) with Section 404 of SOX. While a deferral announcement delays incurring the cost of compliance with Section 404, it signals lack of disclosure of relevant price sensitive information about the effectiveness of internal control systems, leading to higher levels of information asymmetry. Consistently, we find that, on average, prices increase (decrease) in response to the announcements signaling compliance (deferral of compliance) with Section 404 of SOX. Additionally, the results from cross-sectional analyses of abnormal returns indicate that changes in information asymmetry are priced by investors, whereas firm-specific estimates of cost of compliance with Section 404 do not appear to play a significant role in securities.

Keywords: Information asymmetry; Abnormal returns; Sarbanes–Oxley Act; Securities and Exchange Commission; Section 404 of SOX; Non-accelerated filers (search for similar items in EconPapers)
JEL-codes: G14 G3 K2 M4 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1815566915000259
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jocaae:v:11:y:2015:i:3:p:231-244

DOI: 10.1016/j.jcae.2015.07.003

Access Statistics for this article

Journal of Contemporary Accounting and Economics is currently edited by Agnes C.S. Cheng, P. Clarkson, F.A. Gul, Zoltan Matolcsy, Dan Simunic and Ben Srinidhi

More articles in Journal of Contemporary Accounting and Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().