The Effect of Sox Internal Control Deficiencies on Firm Risk and Cost of Equity

The Effect of SOX Internal Control Deficiencies on stanch arrest and Cost of Equity Hollis Ashbaugh-Skaife University of Wisconsin-Madison hskaife@bus.wisc.edu Daniel W. Collins* University of Iowa daniel-collins@uiowa.edu William R. Kinney, Jr. University of Texas-at Austin william.kinney@mccombs.utexas.edu Ryan LaFond ACI ryan.lafond@acinvestors.net legitimate discrepancy: April 2006 Final Version: June 10, 2008 We give thanks Lynn Turner, an anonymous referee, and shop participants at the University of CaliforniaIrvine, Columbia University, Georgia State University, Nanyang technical University, capital of Singapore Management University, University of Technology-Sydney, the University of Tennessee and the University of Texas for helpful comments and suggestions. We also thank Glass Lewis & Co. for information assistance. Electronic copy available at: http://ssrn.com/ abbreviation=896760 The Effect of SOX Internal Control Deficiencies on Firm assay and Cost of Equity Abstract The Sarbanes-Oxley Act (SOX) mandates trouble evaluation and independent visits of inwrought realize effectiveness. The mandate is raffish to firms just now may yield benefits through light information bump that translates into lower cost of equity.

We use unaudited pre-SOX 404 disclosures and SOX 404 audit opinions to assess how changes in subjective control quality displace firm jeopardy and cost of equity. After controlling for separate risk factors, we decree that firms with inherent control deficiencies have importantly higher individual risk, systematic risk, and cost of equity . Our change analyses document that auditor! -confirmed changes in internal control effectiveness (including remediation of antecedently disclosed internal control deficiencies) are followed by square changes in the cost of equity that range from 50 to one hundred fifty basis points. Overall, our cross-section(a) and inter-temporal change test results are consistent with internal control reports affecting investors risk assessments and firms cost of...If you want to have a full essay, order it on our website: OrderCustomPaper.com

If you want to get a full essay, visit our page: write my paper