This paper explores whether the Sarbanes-Oxley Act (the SOX Act) of 2002 is associated with the incidence of earnings management in the US. The results reveal significant reductions in abnormal accruals after the implementation of the SOX Act. Furthermore, following the implementation of the SOX Act, the authors find an association between firms with high pre-managed earnings and fewer incidences of income-reducing earnings management behavior. In contrast, there is no evidence to suggest that the SOX Act has succeeded in restraining income-increasing manipulation by firms with poor pre-management earnings. Our findings suggest that the SOX Act has contributed significantly to the integrity of financial statements; however, for those firms with high incentives to achieve earnings benchmarks, the effect is limited.
|Number of pages||10|
|Journal||Investment Management and Financial Innovations|
|State||Published - 1 Jan 2011|
- Discretionary accruals
- Earnings management
- Sarbanes-Oxley Act