Jurnal Umum
Changes in Discretionary Financial Reporting Behavior Following the Sarbanes-Oxley Act
We examine the effect of the Sarbanes-Oxley Act (SOX) on the extent of
aggressive versus conservative reporting behavior of public companies.
SOX imposes considerably greater potential penalties on chief executive
officers (CEOs) and chief financial officers (CFOs) who engage in
financial wrongdoing. Therefore, risk-averse managers are likely to
report lower earnings by reducing discretionary accruals following SOX.
Our results, based on a matched sample of dual-listed Canadian firms
and their domestically listed counterparts, indicate that (1) firms subject
to SOX are more conservative in financial reporting in the post-SOX
period as evidenced by lower signed discretionary accruals, the Ball and
Shivakumar (2005) conditional conservatism measure, and the Penman
and Zhang (2002) unconditional conservatism measure; and (2) the
impact of SOX on firms’ conservative reporting through discretionary
accruals in the post-SOX period is not homogeneous—that is, it is more
pronounced for firms that were aggressive in the pre-SOX period.
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