Internal control material weakness opinions and the market's reaction to securities fraud litigation announcements

Yu-Cheng Tsai and Hua-Wei Huang

Finance Research Letters, 2021, vol. 41, issue C

Abstract: Using 465 firm-year observations of publicly litigated firms in the U.S. from 2000 to 2018, this study finds that declines in stock price on securities fraud litigation announcement dates are significantly more severe for publicly litigated firms receiving U.S. SOX 404 internal control material weakness (ICMW) opinions. Also, the stock price declines are more prominent for publicly litigated firms with entity-level ICMW than for those with account-level ICMW. The aforementioned findings show that ICMW opinions have predictive value for public investors and capital market participants.

Keywords: Market Reaction; Securities Fraud Litigation; Sarbanes-Oxley Act Section 404; Internal Control Material Weakness Opinion (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:41:y:2021:i:c:s1544612320316470

DOI: 10.1016/j.frl.2020.101833

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