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Shine a light: how firm responses to announcing earnings restatements changed after Sarbanes-Oxley

Journal

Journal of Business Ethics

Subject

Strategy and Entrepreneurship

Publishing details

Journal of Business Ethics 2019 Vol 160:2 p 427-443

Authors / Editors

Pozner J E;Mohliver A;Moore C

Biographies

Aharon Cohen-Mohliver

Publication Year

2019

Abstract

We explore how the Sarbanes-Oxley Act of 2002 created pressure for firms to take more visible and costly corrective action following the announcement of an earnings restatement. Building on theory about focusing events, the institutional effects of legislative change, and the agenda-setting role of the media, we propose that Sarbanes-Oxley created reactive normative pressure on firms that announce earnings restatements, increasing the likelihood of CEO replacement in their aftermath. We theorize that Sarbanes-Oxley changed the meaning – and therefore the impact – of media coverage of earnings restatements. Our findings show that firm behavior after Sarbanes-Oxley did change in ways that are consistent with the intent of the legislation: to increase executives’ accountability for the reliability of their firms’ financial statements. Moreover, we show this change is a result both of the direct effect of the legislation on increasing CEO accountability as well as through intensifying the effect of the media spotlight on misconduct.

Keywords

Earnings restatements; Legislative change; CEO change; Media; Sarbanes-Oxley

Publication Notes

Nominated best paper in Sustainability, Ethics and Entrepreneurship conference, Denver 2016

Available on ECCH

No


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