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Economic effects of SOX Section 404 compliance: A corporate insider perspective

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  • Alexander, Cindy R.
  • Bauguess, Scott W.
  • Bernile, Gennaro
  • Lee, Yoon-Ho Alex
  • Marietta-Westberg, Jennifer

Abstract

We use survey responses from 2,901 corporate insiders to assess the costs and benefits of compliance with Section 404 of the Sarbanes-Oxley Act. The majority of respondents recognize compliance benefits, but they do not perceive these benefits to outweigh the costs, on average. This is particularly true among smaller companies where the start-up costs are proportionately larger. However, the perceived efficiency of compliance increases with auditor attestations, years of compliance experience, and after the remediation of a material weakness. Notably, the perceived effects of compliance depend largely on firm complexity, but are mostly unrelated to firm governance structure.

Suggested Citation

  • Alexander, Cindy R. & Bauguess, Scott W. & Bernile, Gennaro & Lee, Yoon-Ho Alex & Marietta-Westberg, Jennifer, 2013. "Economic effects of SOX Section 404 compliance: A corporate insider perspective," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 267-290.
    • Handle: RePEc:eee:jaecon:v:56:y:2013:i:2:p:267-290
    DOI: 10.1016/j.jacceco.2013.09.002
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    10. Trigilia, Giulio, 2016. "Optimal Leverage and Strategic Disclosure," CRETA Online Discussion Paper Series 18, Centre for Research in Economic Theory and its Applications CRETA.
    11. Ana Albuquerque & Julie Lei Zhu, 2019. "Has Section 404 of the Sarbanes–Oxley Act Discouraged Corporate Investment? New Evidence from a Natural Experiment," Management Science, INFORMS, vol. 65(7), pages 3423-3446, July.
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    More about this item

    Keywords

    Corporate governance; Internal controls; Regulation; Sarbanes-Oxley; Section 404;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M49 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Other

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