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Did the Sarbanes-Oxley Act of 2002 make Firms less Opaque? Evidence from Analyst Earnings Forecasts

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  • Stefan Arping

    (University of Amsterdam)

  • Zacharias Sautner

    (University of Amsterdam)

Abstract

We study whether the Sarbanes-Oxley Act (SOX) of 2002 made firms less opaque. For identification, we use a difference-in-differences estimation approach and compare EU firms that are cross-listed in the US—and therefore subject to SOX—with comparable EU firms that are not cross-listed. We derive proxies for corporate opaqueness from analyst earnings forecasts. Our findings suggest that, relative to the control group, cross-listed firms became significantly less opaque after the implementation of SOX. We provide evidence that this effect was particularly pronounced for firms operating in informationally sensitive industries. We complement our analysis with a textual analysis of corporate annual reports in order to shed light on how SOX may have affected firms’ reporting behavior.

Suggested Citation

  • Stefan Arping & Zacharias Sautner, 2010. "Did the Sarbanes-Oxley Act of 2002 make Firms less Opaque? Evidence from Analyst Earnings Forecasts," Tinbergen Institute Discussion Papers 10-129/2/DSF 5, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20100129
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    1. Etienne Farvaque & Catherine Refait-Alexandre & Dhafer Saïdane, 2011. "Corporate disclosure: A review of its (direct and indirect) benefits and costs," International Economics, CEPII research center, issue 128, pages 5-31.

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    More about this item

    Keywords

    Sarbanes-Oxley Act; Analyst Forecasts; Corporate Governance; Disclosure Regulation;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance

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