The impact of Sarbanes-Oxley act on cosmetic earnings management

June Y. Aono and Liming Guan

Research in Accounting Regulation, 2008, vol. 20, issue C, 205-215

Abstract: This study examines the mitigating effect of Sarbanes-Oxley Act on cosmetic earnings management, referred by Kinnunen and Koskela (2003) as earnings manipulative behavior to round earnings such that they result in an upward bias. This behavior reports income numbers to achieve key cognitive reference points represented by N×10k. Using Benford’s law, our analysis compares the distribution of second digits in reported annual net income for publicly listed US companies between a 2-year periods before and after the year 2002 when Sarbanes-Oxley Act went into effect. Our empirical results suggest that, in the 2-year period prior to the Act, there was evidence of cosmetic earnings management. However, such behavior in manipulating net income has noticeably decreased in the period after the Act. This finding is consistent with the notion that Sarbanes-Oxley Act has a deterring impact on corporate America’s manipulative behavior to report earnings that achieve certain key reference points.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1052045707002123
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reacre:v:20:y:2008:i:c:p:205-215

DOI: 10.1016/S1052-0457(07)00212-3

Access Statistics for this article

Research in Accounting Regulation is currently edited by G. Previts

More articles in Research in Accounting Regulation from Elsevier
Bibliographic data for series maintained by Catherine Liu ().