 Stock Investors’ Response to Disclosures of Material Weaknesses in Internal ControlMirela Dobre ()
Journal of Accounting and Management Information Systems, 2011, vol. 10, issue 3, 397-423 Abstract: There has been some controversy regarding the burden that the Sarbanes-Oxley Section 404 (SOX 404) casts on American public companies and whether the benefits outweigh the costs of compliance. Starting with November 15, 2004, Section 404 of the Act requires all accelerated firms (with at least $75 million in public equity) to report on the effectiveness of their internal controls over financial reporting. Reporting under SOX is meant to improve investor confidence concerning the stock of a specific company by adding credibility to its financial statements. An increase in the quality of financial information should determine a reduction in information asymmetry among stock investors, narrowing the bid-ask spread. I use the model developed by Bollen, Smith and Whaley (2004) to separate the cost components of the bid-ask spread for a sample of compliant firms in the period surrounding the implementation of SOX 404. The expectation is that the passage did have a positive effect, by reducing the bid-ask spread. Keywords: Bid-ask spread; informed trading; information asymmetry; internal controls; adverse selection cost (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:ami:journl:v:10:y:2011:i:3:p:397-423 Access Statistics for this article More articles in Journal of Accounting and Management Information Systems from Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.