Economic Effects of SOX Section 404 Compliance: A Corporate Insider Perspective

Alexander, Cindy R.; Bauguess, Scott W.; Bernile, Gennaro; Lee, Yoon-Ho Alex; Marietta-Westberg, Jennifer

doi:10.2139/ssrn.2319414

Cited by 35 publications

(31 citation statements)

References 22 publications

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“…Small firms' operating cash flows to assets decline by 3.0% compared to 0.7% for medium-sized firms and 0.5% for large firms, consistent with fixed costs of compliance. In a similar vein, Alexander et al (2013) find a strong inverse relationship between compliance costs and firm size. Total compliance costs for the smallest tercile are eight times as high as the smallest tercile, although the difference becomes a bit smaller over time.…”

Section: Compliance Cost Effectmentioning

confidence: 70%

The effects of stricter regulation on the going public decision of small and knowledge‐intensive firms

Engelen

Meoli

Signori

et al. 2020

Business Fin & Account

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This paper studies the impact of increased securities regulation on the IPOs of small and high‐tech, knowledge‐intensive firms. We take advantage of the adoption of European SOX‐like provisions, staggered at different dates across European countries, to test its influence on the going public decision. Starting from the population of European private firms during 1995–2012, we find that the likelihood of going public has decreased among small and high‐tech, knowledge‐intensive firms. Consistently, we document a 6% and 8.5% decrease in the industry‐adjusted Tobin's Q of small and knowledge‐intensive firms that go public after the regulatory change.

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Section: Compliance Cost Effectmentioning

confidence: 70%

The effects of stricter regulation on the going public decision of small and knowledge‐intensive firms

Engelen

Meoli

Signori

et al. 2020

Business Fin & Account

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“…Doogar et al 2 (2010) conclude that compared with AS2, AS5 can reduce the audit fees of low-risk company and improve the audit fees of high-risk company. Alexander et al 3 (2013) find in the early implementation of Section 404, the cost is generally higher than the proceeds, but with the correction of internal control deficiencies, the company will achieve more significant gains The implementation of the internal control audit means that auditors need to take on more legal responsibility and face higher audit risk, which will greatly increase the auditor's effort and the audit fees. So, we can assume that: H1: The implementation of internal control audit will increase company's audit fees.…”

Section: Literature Review and Hypothesismentioning

confidence: 99%

Research on internal control audit, internal control deficiency and audit fees

Pan¹,

Yu²

2017

Proceedings of the Second International Conference on Economic and Business Management (FEBM 2017)

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With the development of the internal control system, the internal control audit has received more attention.This paper takes the A-share listed companies in Shanghai and Shenzhen as a sample, to study the effect of the disclosure of internal control audit report, the opinion of internal control audit and the repair of internal control deficiencies on audit fees. This paper draws the following conclusions: Companies that perform internal control audits pay higher audit fees; When the company's internal control report is issued a standard unqualified opinion, the audit fees will be reduced; Repair of the internal control deficiencies will result in lower audit fees for the following year.

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“…For example, Hartman () reports that S&P Small‐Cap firms experienced an average increase of over 300 percent in audit fees between 2001 and 2006, mostly due to initial section 404 compliance. Additional compliance costs also included expenses paid to outside vendors as well as internal labor (Alexander, Bauguess, Bernile, Lee, and Marietta‐Westberg ; SEC ). The empirical evidence from event studies confirms the burden of section 404.…”

Section: Hypothesis Development and Research Designmentioning

confidence: 99%

“…Compliance costs for section 404 are comprised of the following main components, ordered in terms of relative magnitude: internal labor, 404 audit fees, outside vendors, and nonlabor costs (Alexander et al. ; SEC ). Both studies identify firm size as a major driver for compliance costs.…”

Section: Hypothesis Development and Research Designmentioning

confidence: 99%

To Comply or Not to Comply: Understanding the Discretion in Reporting Public Float and SEC Regulations

Gao

2015

Contemporary Accting Res

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This paper documents how firms exercise discretion in defining affiliates and reporting public float in response to Securities and Exchange Commission regulations. I find that firms with higher expected compliance costs under section 404 of the Sarbanes-Oxley Act of 2002 tend to classify more shares as affiliated and report lower public float. In contrast, firms issuing seasoned equity are less likely to underreport public float, possibly due to favorable regulatory treatment for large issuers. These incentives are weakened when future regulatory changes render float less important.Se conformer ou non : comprendre la latitude dont jouissent les soci et es dans la pr esentation de l'information relative au flottant dans le cadre des r eglements de la SEC R ESUM E L'auteure d ecrit comment les soci et es exercent leur pouvoir discr etionnaire dans la d efinition d'affili es et la pr esentation de l'information relative au flottant, dans le cadre de la r eglementation de la Securities and Exchange Commission. Elle constate que les soci et es dont les coûts d'observation pr evus sont plus elev es sous le r egime de l'article 404 de la Loi Sarbanes-Oxley de 2002 ont tendance a classer davantage d'actions comme etant celles d'affili es et a faire etat d'un flottant moins elev e. Par contre, les soci et es qui emettent des titres acclimat es sont moins susceptibles de pr esenter un flottant sous-evalu e, peut-être en raison du traitement r eglementaire favorable dont b en eficient les emetteurs importants. Le pouvoir de ces incitatifs s'att enue lorsque les modifications ult erieurement apport ees a la r eglementation diminuent l'importance du flottant.

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Economic Effects of SOX Section 404 Compliance: A Corporate Insider Perspective

Cited by 35 publications

References 22 publications

The effects of stricter regulation on the going public decision of small and knowledge‐intensive firms

The effects of stricter regulation on the going public decision of small and knowledge‐intensive firms

Research on internal control audit, internal control deficiency and audit fees

To Comply or Not to Comply: Understanding the Discretion in Reporting Public Float and SEC Regulations

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