The effect of SOX on the predictability of future cash flows in litigious and non-litigious industries

Hsihui Chang, Sang-Hyun Suh, Edward Werner and Jian Zhou

Asia-Pacific Journal of Accounting & Economics, 2012, vol. 19, issue 2, 210-226

Abstract: We investigate whether the role of discretionary accruals in predicting future operating cash flows changes after the passage of SOX. We also examine the information content of discretionary accruals in litigious industries. We find that discretionary accruals are positively associated with future operating cash flows and that discretionary accruals become even more important to predict future cash flows during the post-SOX period. Findings also indicate that litigious industry firms impart greater information content relative to those in nonlitigious industries prior to SOX being issued and that the SOX effect on discretionary accruals is weaker for such firms as a result.

Date: 2012
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DOI: 10.1080/16081625.2012.667396

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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