Stock Investors' response to SOX 404 Material Weakness Disclosures
Автор:Maria Mirela Dobre Год: 2012 Издание:LAP Lambert Academic Publishing Страниц: 200 ISBN: 9783848425617 Brief Synopsis: This paper investigates the market effects of Section 404 of the Sarbanes-Oxley Act by looking at the changes that the passage has brought in trader’s information asymmetry, proxied by market makers’ bid-ask spreads. Before the enactment of Sarbanes-Oxley, firms were only required to publicly disclose internal control deficiencies if there was a change in auditor. I hypothesize that if compliance with SOX 404 increases internal control over financial reporting, investor confidence in annual reports will also increase. Superior disclosures available to all traders lead to a reduction of information asymmetry. An increase in the quality of financial information should determine a narrowing of market maker’s bid-ask spreads because the adverse selection cost is lower. I identify the cost components of the bid-ask spread for a sample of stocks surrounding the implementation of SOX 404. My expectation is that market makers react to the implementation of Section 404 as if...
