To ensure that audit committees provide sufficient oversight over the auditing process and quality of financial reporting, legislators have imposed stricter requirements on the independence of audit ...committe members. Although many audit committees appear to be "fully" independent, anecdotal evidence suggests that CEOs often appoint directors from their social networks. Based on a 2004 to 2008 sample of U.S.-listed companies after the Sarbanes-Oxley Act, we find that these social ties have a negative effect on variables that proxy for oversight quality. In particular, we find that firms whose audit committees have "friendship" ties to the CEO purchase fewer audit services and engage more in earnings management. Auditors are also less likely to issue going-concern opinions or to report internal control weaknesses when friendship ties are present. On the other hand, social ties formed through "advice networks" do not seem to hamper the quality of audit committee oversight.
We examine the effect of financial reporting quality on the trade-off between monitoring mechanisms used by lenders. We rely on Sarbanes-Oxley internal control reports to measure financial reporting ...quality. We find that when a firm experiences a material internal control weakness, lenders decrease their use of financial covenants and financial-ratio-based performance pricing provisions and substitute them with alternatives, such as price and security protections and credit-rating-based performance pricing provisions. We also find that changes in debt contract design following internal control weaknesses are substantially different from those following restatements, where lenders impose tighter monitoring on managers' actions, but do not decrease their use of financial statement numbers.
Purpose
To maintain auditor independence, Section 201 of the Sarbanes–Oxley Act of 2002 (SOX) imposes restrictions on audit firms in rendering management advisory services (MASs) to audit clients. ...Responding to the requirement, audit firms establish a strategic alliance with consulting companies to expand their scope of services to alleviate the impairment of auditor independence. Taiwan follows the spirit of SOX in related laws and regulations. To investigate the effects of SOX on Taiwanese auditing industry, this study aims to examine the relationship between MASs and operating performance of audit firms.
Design/methodology/approach
This study obtains empirical data from the 1989–2017 Survey Report of Audit Firms in Taiwan, published by the Financial Supervisory Commission (FSC). FSC administers the survey across all registered audit firms annually to collect business information on the auditing industry for macro-economic analysis and industrial policy development. The authors group audit firms into three categories: national, regional and local firms. Based on the structure-conduct-performance (S-C-P) theoretical framework, this study establishes the following cross-sectional regression equation to test the authors’ hypotheses.
Findings
Main results indicate that national firms have better post-SOX firm and alliance performance. Both firm and alliance MASs contribute more to the performance of national firms after SOX.
Practical implications
This study claims that national firms establish alliance with consulting companies for resource sharing but regional and local firms for tax-saving.
Originality/value
Consistent with the economic theory of regulation and resource-based theory, SOX matters in Taiwan.
Although the composition of the board of directors has important implications for different aspects of firm performance, prior studies tend to focus on financial performance. The effects of board ...composition on corporate social responsibility (CSR) performance remain an under-researched area, particularly in the period following the enactment of the Sarbanes-Oxley Act of 2002 (SOX). This article specifically examines two important aspects of board composition (i.e., the presence of outside directors and the presence of women directors) and their relationship with CSR performance in the Post-SOX era. With data covering over 500 of the largest companies listed on the U.S. stock exchanges and spanning 64 different industries, we find empirical evidence showing that greater presence of outside and women directors is linked to better CSR performance within a firm's industry. Treating CSR performance as the reflection of a firm's moral legitimacy, our study suggests that deliberate structuring of corporate boards may be an effective approach to enhance a firm's moral legitimacy.
The problem of Tender Offer is sticking to the surface, among others, because there have been several cases involving the Takeover of a Public Company by another Party, thus causing losses to other ...Shareholders, especially the Public Shareholders. This study aims to determine the arrangement of Tender Offers in Indonesia and the impact of the Takeover on a Public Company that was taken over. The form of research in the writing of this journal is normative legal research using the statutory approach. The legal materials used are of two types, namely primary legal materials and secondary legal materials. The results of this research are: First, Mandatory Tender Offer is regulated in POJK No. 9/POJK.04/2018. There is a provision that the Controllers must refloate within two years if the share ownership exceeds 80% as a result of the Mandatory Tender Offer. Then, the Voluntary Tender Offer is regulated in POJK No. 54/POJK.04/2015 concerning Voluntary Tender Offer. In general, the background to the Voluntary Tender Offer is that the Target Company plans to be delisted, as well as changing its status to a Private Company (Go Private). Also, the Voluntary Tender Offer can be made if the Bidder wishes to increase its investment portfolio and assesses that the Target Company has the potential to continue to develop in the future. Second, Takeovers can have legal consequences on the status of the company, company controllers, and employment.
This paper examines user participation in information systems security risk management and its influence in the context of regulatory compliance via a multi-method study at the organizational level. ...First, eleven informants across five organizations were interviewed to gain an understanding of the types of activities and security controls in which users participated as part of Sarbanes-Oxley compliance, along with associated outcomes. A research model was developed based on the findings of the qualitative study and extant user participation theories in the systems development literature. Analysis of the data collected in a questionnaire survey of 228 members of ISACA, a professional association specialized in information technology governance, audit, and security, supported the research model. The findings of the two studies converged and indicated that user participation contributed to improved security control performance through greater awareness, greater alignment between IS security risk management and the business environment, and improved control development. While the IS security literature often portrays users as the weak link in security, the current study suggests that users may be an important resource to IS security by providing needed business knowledge that contributes to more effective security measures. User participation is also a means to engage users in protecting sensitive information in their business processes.
We develop a model that shows that an overconfident manager, who sometimes makes value-destroying investments, has a higher likelihood than a rational manager of being deliberately promoted to CEO ...under value-maximizing corporate governance. Moreover, a risk-averse CEO's overconfidence enhances firm value up to a point, but the effect is nonmonotonic and differs from that of lower risk aversion. Overconfident CEOs also underinvest in information production. The board fires both excessively diffident and excessively overconfident CEOs. Finally, Sarbanes-Oxley is predicted to improve the precision of information provided to investors, but to reduce project investment.
We study determinants of internal control reporting decisions under Section 404 of the Sarbanes-Oxley Act (SOX 404) using a sample of restating firms whose original misstatements are linked to ...underlying control weaknesses. We find that only a minority of these firms acknowledge their existing control weaknesses during their misstatement periods, and that this proportion has declined over time. Further, the probability of reporting existing weaknesses is negatively associated with external capital needs, firm size, non-audit fees, and the presence of a large audit firm; it is positively associated with financial distress, auditor effort, previously reported control weaknesses and restatements, and recent auditor and management changes. These results provide evidence that detection and disclosure incentives play a role in whether existing material weaknesses are reported, which has implications for the effectiveness of SOX 404 in providing investors with advance warning of potential accounting problems.
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