The impact on stock prices of deferral and elimination of internal control audit requirement for small firms

Reza Espahbodi and Hassan Espahbodi

Journal of Contemporary Accounting and Economics, 2019, vol. 15, issue 2, 158-166

Abstract: This paper examines the cumulative market reaction to the events related to deferral of internal control audit requirement under the Sarbanes-Oxley Act of 2002 and its elimination under the Dodd-Frank Act of 2010 for nonaccelerated filers (small firms). We document that small firms experienced negative cumulative abnormal returns around these events; and the differences between the cumulative abnormal returns for small firms and the two control groups (accelerated and large accelerated filers) were negative and significant at the 1% level. These results support the notion that market participants value the reliability of financial information irrespective of the firm size. Within the small firms, we find no firm characteristic significantly explains the market reaction to the events considered. That is, all small firms lost market value in reaction to the events that delayed and eliminated their internal control audit requirement.

Keywords: Security price reaction; Financial information quality/reliability; Sarbanes-Oxley Act; Dodd-Frank Act; Nonaccelerated filers (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocaae:v:15:y:2019:i:2:p:158-166

DOI: 10.1016/j.jcae.2019.04.002

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