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The Sarbanes-Oxley Act of 2002 and The Publicity Effect

The Sarbanes-Oxley Act of 2002 (SOX) was enacted as a response to some of the most egregious accounting scandals in history. Since SOX’s inception, experts continue to debate the costs and benefits associated with the act. Prior research suggests that some of the benefits associated with the Act may actually be attributable to other concurrent events such as firms’ reactions to the negative publicity. This paper investigates the effect that a firm’s publicity level has on the firm’s likelihood to issue a financial restatement. This study suggests that some of the benefits associated with SOX can actually be attributed to what I call the publicity effect. I find that although high publicity firms are more likely to issue a financial restatement post-SOX relative to low publicity firms, this difference is mitigated by the publicity effect. The empirical model suggests firms that are classified as having low publicity prior to SOX’s enactment are more likely to respond to the adverse publicity of the major accounting scandals. This study suggests that the benefit of more reliable financial statements is a combination of the stringent SOX regulations as well as the market’s reaction to negative publicity. My findings suggest that future cost-benefit analyses of SOX should attempt to capture the publicity effect.

Identiferoai:union.ndltd.org:CLAREMONT/oai:http://scholarship.claremont.edu/do/oai/:cmc_theses-1587
Date01 January 2013
CreatorsBernstein, Jared E.
PublisherScholarship @ Claremont
Source SetsClaremont Colleges
Detected LanguageEnglish
Typetext
Formatapplication/pdf
SourceCMC Senior Theses
Rights© 2913 Jared E. Bernstein

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