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040 _aMSU
_cMSU
_erda
100 1 _aSinger, Zvi
_eauthor
245 _aThe effect of section 404 of the Sarbanes-Oxley Act on earnings quality
_cby Zvi Singer and Haifeng You
264 _aThousand Oaks, CA:
_bSage Publications;
_c2011.
336 _2rdacontent
_atext
_btxt
337 _2rdamedia
_aunmediated
_bn
338 _2rdacarrier
_avolume
_bnc
440 _aJournal of Accounting, Auditing and Finance
_vVolume 26, number 3,
520 _aIn this article, the authors study the effect of Section 404 of the Sarbanes-Oxley Act on two primary characteristics of earnings quality, reliability and relevance in combination. Using a difference-in-differences method, they find that firms that were required to comply with Section 404 during the first 2 years of its implementation improved the reliability of their reported earnings more than control firms that were not required to comply. The results also suggest that the regulation helped to reduce intentional misstatement, which may contribute to the improvement in earnings reliability. Furthermore, the improvement in reliability did not come at the expense of the relevance of earnings. On the contrary, the authors find a significantly larger improvement in the predictive power of current earnings over future earnings and future cash flows associated with complying firms. As earnings quality improved, investor confidence appears to be restored, in that they reacted more strongly to earnings surprises of complying firms than to those of the control firms in the post-404 period. The results of this study suggest that Section 404 helped to achieve the main goal of the Act: protecting investors and restoring their confidence in the stock market by improving the accuracy and reliability of corporate disclosure.
650 _aEarnings quality
650 _aInternal control
650 _aIntentional misstatements
700 1 _aYou, Haifeng
_eco-author
856 _uhttps://doi.org/10.1177/0148558X11401554
942 _2lcc
_cJA
999 _c163483
_d163483