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
Authors / Editors
Pozner J E;Mohliver A;Moore C
Biographies
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