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Risk Shifts Following Sarbanes-Oxley: Influences of Disclosure and Governance

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  • Aigbe Akhigbe
  • Anna D. Martin
  • Melinda Newman
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    Abstract

    The Sarbanes-Oxley Act of 2002 (SOX) aimed to improve financial reporting by enhancing corporate disclosure and governance. We find statistically significant increases, from before to after the passage of SOX, in total return variance, market risk and idiosyncratic risk. The risk increases are consistent with predictions that the legislation would cause firms to disclose more negative information, resulting in increased investment risk. However, in cross-sectional tests, post-SOX improvements in information certainty, board independence and monitoring are associated with smaller increases or greater decreases in risk. If SOX is responsible for these improvements, its effects are consistent with its purpose. Copyright (c) 2008, The Eastern Finance Association.

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    Bibliographic Info

    Article provided by Eastern Finance Association in its journal Financial Review.

    Volume (Year): 43 (2008)
    Issue (Month): 3 (08)
    Pages: 383-401

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    Handle: RePEc:bla:finrev:v:43:y:2008:i:3:p:383-401

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    Web page: http://www.easternfinance.org/
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    Cited by:
    1. Waters, James, 2013. "The Sarbanes-Oxley Act, industrial innovation, and real option creation," MPRA Paper 49173, University Library of Munich, Germany.

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