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The impact on stock prices of deferral and elimination of internal control audit requirement for small firms

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  • Espahbodi, Reza
  • Espahbodi, Hassan

Abstract

This paper examines the cumulative market reaction to the events related to deferral of internal control audit requirement under the Sarbanes-Oxley Act of 2002 and its elimination under the Dodd-Frank Act of 2010 for nonaccelerated filers (small firms). We document that small firms experienced negative cumulative abnormal returns around these events; and the differences between the cumulative abnormal returns for small firms and the two control groups (accelerated and large accelerated filers) were negative and significant at the 1% level. These results support the notion that market participants value the reliability of financial information irrespective of the firm size. Within the small firms, we find no firm characteristic significantly explains the market reaction to the events considered. That is, all small firms lost market value in reaction to the events that delayed and eliminated their internal control audit requirement.

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  • Espahbodi, Reza & Espahbodi, Hassan, 2019. "The impact on stock prices of deferral and elimination of internal control audit requirement for small firms," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(2), pages 158-166.
    • Handle: RePEc:eee:jocaae:v:15:y:2019:i:2:p:158-166
    DOI: 10.1016/j.jcae.2019.04.002
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    2. Imran Abbas Jadoon & Umara Noreen & Usman Ayub & Muhammad Tahir & Naima Shahzadi, 2021. "The Impact of Family Ownership on Quality and Disclosure of Internal Control in Pakistan," Sustainability, MDPI, vol. 13(16), pages 1-16, August.
    3. Caraiman Adrian-Cosmin, 2020. "Coso Control Framework In Corporate Governance," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 6, pages 112-117, December.

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