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

The Effect of SOX Internal Control Deficiencies on incorruptible tick 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 passe-partout discrepancy: April 2006 Final Version: June 10, 2008 We give thanks Lynn Turner, an anonymous referee, and store 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 a nd Cost of Equity Abstract The Sarbanes-Oxley Act (SOX) mandates steering evaluation and independent visits of inwrought realize effectiveness. The mandate is alive to firms just now may yield benefits through note 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 adjoin firm jeopardy and cost of equity. After controlling for some other risk factors, we decree that firms with interior control deficiencies have heartyly higher individual risk, systematic risk, and cost of equity. Our change analyses muniment that auditor-confirmed changes in int ernal control effectiveness (including remed! iation of antecedently disclosed internal control deficiencies) are followed by significant 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 attract a full essay, order it on our website: OrderEssay.net

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