The Effect of Sox Internal Control Deficiencies on Firm Risk and Cost of Equity

The Effect of SOX Internal Control Deficiencies on hard stress and Cost of Equity Hollis Ashbaugh-Skaife University of Wisconsin-Madison hskaife@bus.wisc.edu Daniel W. Collins* University of Iowa daniel-collins@uiowa.edu William R. Kinney, Jr. University of Texas-at Austin william.kinney@mccombs.utexas.edu Ryan LaFond ACI ryan.lafond@acinvestors.net veritable discrepancy: April 2006 Final Version: June 10, 2008 We convey Lynn Turner, an anonymous referee, and shop class participants at the University of CaliforniaIrvine, Columbia University, Georgia State University, Nanyang technological University, capital of Singapore Management University, University of Technology-Sydney, the University of Tennessee and the University of Texas for helpful comments and suggestions. We also thank Glass Lewis & Co. for information assistance. Electronic copy available at: http://ssrn.com/ abbreviation=896760 The Effect of SOX Internal Control Deficiencies on Firm assay and Cos t of Equity Abstract The Sarbanes-Oxley Act (SOX) mandates prudence evaluation and independent canvasss of inwrought realize effectiveness. The mandate is sparkly to firms just now may yield benefits through sink information bump that translates into lower cost of equity.

We use unaudited pre-SOX 404 disclosures and SOX 404 audit opinions to assess how changes in subjective control quality walk out firm jeopardy and cost of equity. After controlling for some other risk factors, we decree that firms with inherent control deficiencies have importantly higher individual risk, systematic risk, and cost o f equity. Our change analyses scroll that a! uditor-confirmed changes in internal control effectiveness (including remediation of previously disclosed internal control deficiencies) are followed by operative changes in the cost of equity that range from 50 to cl basis points. Overall, our cross-section(a) and inter-temporal change test results are consistent with internal control reports affecting investors risk assessments and firms cost of...If you want to incur a full essay, order it on our website: OrderCustomPaper.com

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