 Restraining bad news hoarding from managerial overconfidence: Evidence from the Sarbanes-Oxley ActHyeong Joon Kim and Seongjae Mun Global Finance Journal, 2025, vol. 65, issue C Abstract: This study examines the impact of the Sarbanes-Oxley Act (SOX) on the association between managerial overconfidence and stock price crash risk. The literature posits that overconfident CEOs are more likely to hoard bad news than others, leading to a higher crash risk. Our findings indicate that SOX restrains bad news hoarding from managerial overconfidence. As a result, the difference in crash risk between firms with overconfident and non-overconfident CEOs is significant before SOX but almost disappears after SOX. We provide supportive evidence that SOX reduces crash risk through the bad-news-hoarding channel, using financial restatements and analysts' forecasting. We also find that the effectiveness of SOX is more pronounced for firms with weaker external governance mechanisms and those that are financially constrained. Overall, this study suggests that SOX helps mitigate overconfident managerial behavior, such as bad news hoarding. Keywords: The Sarbanes-Oxley Act; CEO overconfidence; Stock price crash risk; Bad news hoarding (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:65:y:2025:i:c:s1044028325000250 DOI: 10.1016/j.gfj.2025.101098 Access Statistics for this article Global Finance Journal is currently edited by Manuchehr Shahrokhi More articles in Global Finance Journal from Elsevier |
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