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

Article

Khedmati, Mehdi, Navissi, Farshid, Shams, Syed and Vinkler, Daniel. 2015. "News announcement effects of compliance with section 404 of SOX: evidence from non-accelerated filers." Journal of Contemporary Accounting and Economics. 11 (3), pp. 231-244. https://doi.org/10.1016/j.jcae.2015.07.003
Article Title

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

ERA Journal ID18570
Article CategoryArticle
AuthorsKhedmati, Mehdi (Author), Navissi, Farshid (Author), Shams, Syed (Author) and Vinkler, Daniel (Author)
Journal TitleJournal of Contemporary Accounting and Economics
Journal Citation11 (3), pp. 231-244
Number of Pages14
Year2015
PublisherElsevier
Place of PublicationNetherlands
ISSN1815-5669
Digital Object Identifier (DOI)https://doi.org/10.1016/j.jcae.2015.07.003
Web Address (URL)http://www.sciencedirect.com/science/article/pii/S1815566915000259
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.

Keywordsinformation asymmetry; abnormal returns; Sarbanes–Oxley Act; Securities and Exchange Commission; Section 404 of SOX; non-accelerated filers
ANZSRC Field of Research 2020350202. Finance
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Byline AffiliationsMonash University
School of Commerce
No affiliation
Institution of OriginUniversity of Southern Queensland
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