Download or read book Disclosure of Internal Control Weaknesses and the Capital Market Valuation of Earnings Surprise After the Sarbanes Oxley Act of 2002 written by Professor Qi Wang and published by Open Dissertation Press. This book was released on 2017-01-27 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation, "Disclosure of Internal Control Weaknesses and the Capital Market Valuation of Earnings Surprise After the Sarbanes-Oxley Act of 2002" by Qi, Wang, 王祁, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. DOI: 10.5353/th_b4129055 Subjects: Corporations - Valuation Corporate profits Corporations - Auditing - Law and legislation - United States
Download or read book Disclosure of Internal Control Weaknesses and the Capital Market Valuation of Earnings Surprise After the Sarbanes Oxley Act of 2002 written by Qi Wang (M. Phil.) and published by . This book was released on 2008 with total page 112 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Disclosure of Material Weaknesses in Internal Control After the Sarbanes Oxley Act written by Weili Ge and published by . This book was released on 2006 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper focuses on a sample of 261 companies that have disclosed at least one material weakness in internal control in their SEC filings after the effective date of the Sarbanes-Oxley Act of 2002. Based on the descriptive material weakness disclosures provided by management, we find that poor internal control is usually related to an insufficient commitment of resources for accounting controls. Material weaknesses in internal control tend to be related to deficient revenue recognition policies, lack of segregation of duties, deficiencies in the period-end reporting process and accounting policies, and inappropriate account reconciliation. The most common account-specific material weaknesses occur in the current accrual accounts, such as the accounts receivable and inventory accounts. Material weakness disclosures by management also frequently describe internal control problems in complex accounts, such as the derivative and income tax accounts. In our statistical analysis, we find that disclosing a material weakness is positively associated with business complexity (e.g., multiple segments and foreign currency), negatively associated with firm size (e.g., market capitalization), and negatively associated with firm profitability (e.g., return on assets).
Download or read book Internal Control Weakness and Cost of Equity written by Maria Ogneva and published by . This book was released on 2012 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: Section 404 of the Sarbanes-Oxley Act (SOX) requires every company to report on the effectiveness of internal controls over financial reporting. Section 404 has arguably been the most controversial provision of SOX, with many registrants complaining that the high cost of compliance outweighs its benefits. In contrast, the SEC and others have argued that the Section 404 provisions are beneficial to the capital markets and will eventually reduce the cost of capital. In this paper, we examine the association between implied cost of equity and internal control effectiveness for firms that filed Section 404 reports with the SEC. We find marginally higher cost of equity for firms disclosing material weakness in internal controls than for a sample of firms disclosing no material weaknesses. The differences in cost of equity disappear after controlling for firm characteristics associated with firms disclosing material weaknesses. Overall, our results are consistent with internal control weakness identified under Section 404 not being directly associated, on average, with higher implied cost of equity.
Download or read book Market Uncertainty and Disclosure of Internal Control Deficiencies Under the Sarbanes Oxley Act written by Yongtae Kim and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines cross-sectional differences in stock market reactions to the disclosure of internal control deficiencies under Section 302 of the Sarbanes-Oxley Act. We hypothesize that the market punishment for internal control problems will be less severe for internal control disclosure that helps reduce market uncertainty around the disclosure. We also predict that such a relation is dependent on the types of disclosure and the market's prior knowledge of the credibility of firms' financial reporting. Consistent with our hypothesis, we find that when firms disclose their internal control deficiencies, their abnormal stock returns are negatively associated with changes in market uncertainty (e.g., changes in the standard deviations of daily stock returns) around the disclosure. We also find that the impact of the uncertainty reduction is greater for voluntary disclosures of non-material weakness, especially those made in the context of previous suspicious events. The negative impact of changes in market uncertainty on the abnormal stock returns remains intact even after controlling for possible simultaneity. An analysis using financial analysts' earnings forecasts dispersion as an alternative proxy for uncertainty confirms the results.
Download or read book Market Reactions to the Disclosure of Internal Control Weaknesses and to the Characteristics of Those Weaknesses Under Section 302 of the Sarbanes Oxley Act of 2002 written by Jacqueline S. Hammersley and published by . This book was released on 2007 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Under Section 302 of the Sarbanes Oxley Act, officers must evaluate the effectiveness of internal controls quarterly. We examine the stock price reaction to management's disclosure of internal control weaknesses and to their characteristics, controlling for other material announcements are made during the event window. We find evidence suggesting that some characteristics of the internal control weaknesses - their severity, management's conclusion regarding the effectiveness of the controls, their auditability, and how vague the disclosures are - are informative. In subsequent analyses, we find that the relation between returns and auditability holds for significant deficiencies and control deficiencies as well as for material weaknesses. However, the relation between returns and how vague the disclosure is is driven by the observations with material weaknesses. This suggests that the information content of internal control weakness disclosures depends on the severity of the internal control weakness.
Download or read book An Analysis of Firms that Disclose Ineffective Internal Control Over Financial Reporting written by Mason C. Snow and published by . This book was released on 2017 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: In, 2002, Congress passed the Sarbanes-Oxley Act (SOX) to impose more strict regulation with regard to the way public companies manage financial information. This thesis examines companies that disclosed one or more material weaknesses (MWs) in internal controls over financial reporting (ICFR) during the post-SOX period.
Download or read book The Association Between Internal Control Material Weakness and Real Earnings Manipulation written by Isaac Bonaparte and published by . This book was released on 2013 with total page 172 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the association between internal control material weakness under Section 404 of the Sarbanes-Oxley Act of 2002 and real earnings manipulation. The results indicate that manufacturing firms reporting material weaknesses in internal control grant excessive price discounts to temporarily increase sales. They also overproduce to reduce the cost of goods sold, and reduce their discretionary expenses to enhance reported earnings. Another result that emerges from this study is that manufacturing firms in litigious industries are less likely to engage in real earnings manipulation. Segregating the sample into remediating and non-remediating firms, the results suggest that real earnings manipulation significantly attenuates when firms remediate their internal control material weaknesses. Furthermore, there is no significant difference in real earnings manipulation between firms with contained internal control material weaknesses and those with pervasive internal control material weaknesses.-- Abstract.
Download or read book Internal Control Weaknesses and Information Uncertainty written by Messod D. Beneish and published by . This book was released on 2014 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze a sample of 330 firms making unaudited disclosures required by Section 302 and 383 firms making audited disclosures required by Section 404 of the Sarbanes-Oxley Act. We find that Section 302 disclosures are associated with negative announcement abnormal returns of -1.8 percent, and that firms experience an abnormal increase in equity cost of capital of 68 basis points. We conclude that Section 302 disclosures are informative and point to lower credibility of disclosing firms' financial reporting. In contrast, we find that Section 404 disclosures have no noticeable impact on stock prices or firms' cost of capital. Further, we find that auditor quality attenuates the negative response to Section 302 disclosures and that accelerated filers - larger firms required to file under Section 404 - have significantly less negative returns (-1.10 percent) than non-accelerated filers (-4.22 percent). The findings have implications for the debate about whether to implement a scaled securities regulation system for smaller public companies: material weakness disclosures are more informative for smaller firms that likely have higher pre-disclosure information uncertainty.
Download or read book SarbanesOxley at four protecting investors and strengthening markets hearing written by and published by DIANE Publishing. This book was released on with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Foreign Firms Mandatory Reporting of Material Weaknesses in Internal Control written by Maria T. Caban-Garcia and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The enactment of the Sarbanes-Oxley Act (SOX) of 2002 established several reforms to improve corporate governance and financial reporting practices for companies listed in US capital markets. Given the important role played by foreign firms in US capital markets, the present article discusses the early effects of SOX's regulation on foreign firms. Country- and firm-level data provide a descriptive analysis of the characteristics and trends in material weakness in internal controls reporting for firms cross-listed on US exchanges. The discussion includes a description of the implementation timeline of Section 404 for foreign issuers and compares some of these characteristics to reports from US firms. Understanding the characteristics of cross-listed firms, as well as country-specific qualities, is important to auditors and managers as they strive to maintain audit quality and improve internal control practices and corporate governance. This information is beneficial to regulators as these characteristics could have implications in the evaluation of foreign firms' compliance with Section 404 requirements.
Download or read book Dynamics of Deterioration in Internal Control Reported Under SOX 404 written by Chunhua Chen and published by . This book was released on 2019 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine why many firms disclose internal control weaknesses (ICW) under section 404 of Sarbanes-Oxley Act after previously reporting effective internal control (IC). We find that about half of the cross-sectional ICW determinant variables either do not change significantly from Year T-1 to Year T or change in a direction that is not expected to cause IC deterioration. The reported deterioration in IC can be attributed to increases in audit fee, management turnover, restatement, financial distress, firm size, and decrease in financial activities. Consistent with an agency hypothesis that managers try to manipulate the IC process when firm performance declines, the reported deterioration in IC is also associated with poor stock returns in the year before disclosure. ICW disclosure is more likely when poor stock return is combined with higher sensitivity of executive compensation to stock price change.
Download or read book The Wealth Change and Redistribution Effects of Sarbanes Oxley Internal Control Disclosures written by Gus De Franco and published by . This book was released on 2016 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article provides evidence about the wealth change and redistribution effects of Section 404 of Sarbanes-Oxley (SOX), which requires that management assess and publicly report on the effectiveness of their firm's internal controls, and that auditors publicly provide an opinion on management's assessment, as well as the effectiveness of the internal controls. This section is the most expensive, burdensome and contentious part of SOX - mainly because the benefits are elusive, and according to some critics, non-existent. We analyze a sample of 102 firms that report a deficiency in their internal controls between November 1, 2003 and December 31, 2004 and that have no confounding news during the event window. We find that the cumulative size-adjusted abnormal returns are -1.8% during the three-day event window for firms that report internal control deficiencies. This economically-significant wealth change supports the idea that investors value internal control news and that they are not (at least fully) aware of these deficiencies prior to the disclosures. We confirm these results for a small sample of firms reporting deficiencies in the first calendar quarter of 2005. More importantly, using trading data from the NYSE TAQ database, we find that small- (large-) investor net buying is positively (not) associated with returns. More specifically, it is small-investor net selling that is driving the negative returns. These results are consistent with the redistribution of wealth from large to small investors during the announcement period. In summary, our results support the conjectures made by regulators underlying the regulation and show that small investors benefit more from these disclosures than large investors.
Download or read book Spillover Effects of Internal Control Weakness Disclosures written by Shijun Cheng and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We find that firms are less likely to report an internal control material weakness (as mandated by the Sarbanes-Oxley Act) in a given year if one of their audit committee members is concurrently on the board of a firm that disclosed a material weakness within the prior three years. We find a similar spillover effect for financial restatement disclosures. The spillover from material weakness disclosures is evident only if a shared director has more experience with the disclosing firm or can channel more information about the disclosed material weakness. Our findings suggest that prior director experiences outside the firm influence the work of audit committees inside the firm. One rationale is that a director's prior experience with an adverse disclosure helps diffuse important insights and serves as a catalyst for improvements in a firm's internal control and financial reporting practices. An alternative explanation, which we cannot dismiss, holds that a director's prior experience helps a firm to under-report material weaknesses and financial restatements without any attendant improvements in the underlying practices.
Download or read book Material Weakness in Internal Control and Stock Price Crash Risk written by Jie Zhou and published by . This book was released on 2013 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the hitherto unexplored questions of whether and how a material weakness in internal control over financial reporting (ICW) and its disclosure influence the occurrence of extreme negative outliers in stock return distributions, which we refer to as stock price crash risk. We predict and find that firms with ICW problems are more crash-prone than firms with effective internal controls. We also find that stock price crash risk is even greater for fraud-related ICWs and revenue/cost of goods sold-related ICWs. The positive impact of ICW on crash risk is observed at least two years prior to the initial disclosure of the adverse opinion on internal control quality, but gradually decreases over the two-year period after the initial disclosure and essentially disappears subsequent to the remediation of publicly disclosed ICW problems. The above results hold even after controlling for various firm-specific characteristics that are known to influence crash risk and ICWs. Overall, our results suggest that the presence of ICWs tends to facilitate managers' bad news hoarding, which eventually increases stock price crash risk. On the other hand, public disclosure of ICWs constrains managerial incentive and ability to withhold bad news from outside investors, thereby mitigating stock price crash risk.
Download or read book Internal Control Financial Reporting and Firm Performance written by Lokenathan Palanisamy and published by . This book was released on 2015 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation investigates the subject of mandatory internal control financial reporting enacted by Section 404(a) of the Sarbanes-Oxley Act of 2002 (SOX). The primary research hypothesis inquires about the effect of internal control financial reporting on public companies' firm performance or market value. The empirical results based on the SOX Section 404 internal control assessment reports dataset for the period 2004 to 2013 show that firms with effective internal controls have higher market value and inversely firms with ineffective internal controls have lower market value. In addition the average yearly audit and audit related cost per firm had decreased by about 47%; from a high of $2.7 million in 2004 to $1.6 million in 2012. Further the results indicate that a firm¿s choice of the independent Auditor, Market Exchange to trade in and Industry to operate in, significantly affects its effectiveness in SOX 404.
Download or read book Market Reactions to the Disclosure of Internal Control Weaknesses Under the Japanese Sarbanes Oxley Act of 2006 written by Hiroyasu Kawanishi and published by . This book was released on 2016 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article investigates how the stock market reacts to the disclosure of internal control deficiencies under the Japanese Sarbanes-Oxley Act of 2006. Given the Japanese official agencies' attempts to minimize negative shocks, we find no stock market reactions on the whole to the disclosure of internal control weaknesses. We also show that negative market reactions are likely to be intensified if firms have changed auditors in recent years, have uncertainties over their ability to continue as a going concern, have larger assets or fixed debts, or are listed on the emerging stock exchanges. In contrast, negative stock reactions can be mitigated when firms have high ratios of foreign shareholders or current liabilities. Another interesting finding is that whether a firm engages a Big 4 audit firm does not seem to matter to investors evaluating firms with internal control weaknesses.
