In certain circumstances, insider trades such as private transactions between executives and their firms could be disclosed after the end of the firm's fiscal year, on a Form-5 filing. We find that ...insider sales disclosed in such a delayed manner for large firms are predictive of negative future returns (-6 to -8 percent), as well as lower future annual earnings relative to analyst forecasts. These results stand in contrast to existing findings on the uninformativeness of quickly disclosed open-market insider sales. The Sarbanes-Oxley Act curtailed the use of Form 5 under the presumption that managers used this vehicle opportunistically. Our systematic evidence supports this presumption.
In this study we examine the complementary monitoring activity that takes place via the Sarbanes-Oxley Act (SOX) and its effect on security analyst monitoring activity and firm value of large and ...small public firms. Our findings indicate that security analyst monitoring activity has decreased post-SOX while firm value has increased post-SOX for both large and small firms. We also find that the increase in firm value is more pronounced for the group of small firms. Given these results, we surmise that the complementary monitoring activity provided by SOX is effective enough to have a positive impact on firm value. PUBLICATION ABSTRACT
This study provides insights on the effectiveness of the Sarbanes-Oxley Act (U.S. House of Representatives 2002) in promoting high-quality financial reporting and good corporate governance, based on ...interviews conducted with 22 experienced directors from U.S. firms. Our analysis indicates that SOX has positively impacted the monitoring role of the audit committee (board), which directors attributed to the financial expertise and internal control requirements and heightened substantive diligence. However, some considered that an emphasis on financial expertise at the expense of legal expertise and financial markets expertise could compromise the quality of financial disclosures due to a lack of business savvy needed to inform accounting judgments and the standardization of reporting. SOX was also perceived as having led to a formalistic approach to accounting policy decision making by the audit committee and external auditor, as a buffer against litigation. While CEO certification was viewed as having led to heightened ownership and diligence on the part of decision agents throughout the financial reporting decision hierarchy, it was also identified as a source of the costly resource-intensive reaction to SOX. Directors also considered that SOX had led boards to take a narrow focus on financial reporting risk at the expense of strategy. Further, management was identified as being actively involved in the more overt process of initiating and administering the process. The directors' responses also demonstrate some variation in the extent and nature of the role played by the audit committee to resolve accounting disputes, reflecting varying interpretations of law. Participants indicate that SOX has also led to a substantial improvement in the scope, responsibility, and status of internal auditors.
Data Availability: Contact the authors.
► Target run-up is higher for bidders that borrow, are foreign, do friendly acquisitions, and are not private equity firms. ► Target run-up is increasing in bidder advisors and decreasing in bidder ...toehold. ► Target run-up is higher when targets are smaller, have options traded on them, and are in the technology field. ► Target run-up is significantly lower since the Sarbanes-Oxley Act.
The anticipation of an acquisition attracts informed trading, which can cause a high run-up in the target stock price prior to an announced acquisition bid. Because research has shown that bidders do not reduce their bid price to compensate for a relatively high run-up, a larger run-up increases the cost of the acquisition to bidders. Our analysis determines that the target stock price run-up before an announced bid is higher for bidders that are not private equity firms, do friendly acquisitions, are from outside the U.S., rely on newly borrowed funds to finance the acquisition, rely on more investment bank advisors to facilitate the acquisition, and did not previously establish a toehold position in the target. It is also higher when targets are smaller, have listed options traded on them, and are in the technology field. Lastly, target run-up is lower since Sarbanes-Oxley.
In this paper we study the impact of the Sarbanes–Oxley Act (SOX) on the valuation weights of earnings and earnings components. The analysis seeks evidence that SOX is associated with changes in ...investors’ perception of earnings and accruals quality. Of particular interest in the analysis is the effect of SOX on the valuation weight of discretionary accruals that are perceived to be most vulnerable to manipulation prior to SOX. We find reliable increases in the valuation weights of earnings and earnings components after the passage of SOX. Nonetheless, we also find that the post-SOX shifts in the valuation weights of earnings and earnings components are indistinguishable from zero among firms in which the percentage equity shares held by institutional investors is 15% or greater.
•Regulation (SOX) has not reduced the importance of pay-for-performance.•The importance of pay-for-performance varies with acquisition type.•Bidders with high pay-for-performance do not necessarily ...outperform in the long run.
This study examines how pay-for-performance influences the quality of merger decisions before and after Sarbanes–Oxley (SOX). Pay-for performance has a significant positive effect on acquirer returns of 0.9% pre-SOX and 1.1% post-SOX around the three-day event window. Bidders with high pay-for-performance pay a 23.3% lower merger premium in listed target acquisitions. The positive effect of pay-for-performance is more important for public target acquisitions overall, for small acquirers pre-SOX, and for large acquirers post-SOX. In the long run, bidders with high pre-merger pay-for-performance do not necessarily outperform.
This paper empirically examines the impact of the Sarbanes-Oxley Act (SOX) of 2002 on the voluntary disclosure of information security activities by corporations. The empirical evidence provided ...clearly indicates that SOX is having a positive impact on such disclosure. These findings provide strong indirect evidence that corporate information security activities are receiving more focus since the passage of SOX than before SOX was enacted.
The Sarbanes-Oxley Act of 2002 and exchange listing requirements led to an increase in the percentage of independent members on company boards. The literature offers mixed evidence on the effect of ...board independence on corporate governance. Independent directors are said to improve the monitoring role of the board of directors. However, the presence of independent directors increases costs associated with information asymmetry and free riding problems. Accordingly, the firm’s board monitoring efficiency is expected to have a significant impact on managerial decisions and the allocation of the firm’s scarce resources across the different firm segments. We investigate the effect of increased board independence on the efficiency of internal capital markets in diversified firms. Data is collected from the Compustat, ExecuComp, and RiskMetrics databases. Sample is split into 2 sub-periods: (i) Pre-SOX (1996 – 2001); and (ii) Post-SOX (2003-2008). We also divide our sample into two subsamples: (i) Firms that were not in compliance with the independence requirements prior to SOX and became complying afterwards; and (ii) Firms that were already in compliance with the new requirements before SOX. We employ Berger and Ofek’s (1995) method by calculating the imputed values of a given firm’s segments and comparing the sum of those values to the value of the firm. Internal capital market efficiency is measured following Rajan, Servaes, and Zingales (2000). We find that the increase in board independence post-SOX may have moved firms away from their optimal board structure. Our results suggest that, relative to the pre-SOX period, increased board independence post-SOX had a negative effect on diversified firms’ excess value and internal capital market efficiency. The results apply to both subsamples: (i) firms that were previously compliant; and (ii) those that weren’t compliant with the mandates. This suggests that firms may not have benefited from the move towards higher independence in the post-SOX era. Mutual back scratching and socialization within the firm may explain the ineffectiveness and inefficiency of increased board independence in diversified firms. The passed legislations may have had a converse effect on corporate boards. Our results are consistent with Linck, Netter, and Yang (2008) who propose that a one-size-fits-all regulation may be inefficient and could move firms away from their optimum board composition.
Comumente abordada em assuntos sobre transparência e ética nas organizações mundiais, a Lei Sarbanes-Oxley é um marco na prevenção de fraudes nas práticas contábeis. Criada no ano de 2002 com o ...objetivo de proteger e recuperar a confiança dos investidores no mercado de capitais, após sucessivos escândalos de manipulações contábeis nas maiores companhias dos EUA. Nessa perspectiva, o presente estudo objetivou analisar o comportamento dos indicadores econômico-financeiros de uma empresa brasileira que emite ADR’s antes e após a adoção da Lei Sarbanes-Oxley. Para tanto, analisou-se uma empresa listada na Bolsa de Valores de Nova York (NYSE) no período de 1997 a 2016 considerando anos antes e depois da vigência da referida lei. O estudo caracterizou-se por ser uma pesquisa descritiva e quantitativa, cujos procedimentos fundamentaram-se na pesquisa documental e ex-post-facto. Os dados foram coletados do software do Economática® e a técnica estatística utilizada para a análise dos dados foi a análise de variância de fator único, por meio da realização do Teste F e o procedimento Tukey-Kramer. A partir desses testes, observou-se entre os indicadores econômico-financeiros aqueles que apresentaram diferenças significativas nas suas médias, antes e após a aplicação da lei. Diante dos resultados obtidos com a pesquisa, pôde-se concluir que a Lei Sarbanes-Oxley influenciou significativamente o comportamento dos indicadores de estrutura de capital analisados (endividamento geral, composição do endividamento, imobilização do patrimônio líquido e estrutura de capital). Já os demais indicadores estudados, liquidez (liquidez geral, liquidez corrente e liquidez seca) e rentabilidade (retorno sobre o investimento, margem operacional, retorno sobre o patrimônio líquido e alavancagem financeira) apresentaram em seus índices comportamentos discretos, dos quais apenas dois índices de rentabilidade (retorno sobre o investimento e margem operacional) comportaram-se com médias diferentes, resultado proveniente da influência da lei na companhia.
