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The effect of SOX on the predictability of future cash flows in litigious and non-litigious industries

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  • Hsihui Chang
  • Sang-Hyun Suh
  • Edward Werner
  • Jian Zhou

Abstract

We investigate whether the role of discretionary accruals in predicting future operating cash flows changes after the passage of SOX. We also examine the information content of discretionary accruals in litigious industries. We find that discretionary accruals are positively associated with future operating cash flows and that discretionary accruals become even more important to predict future cash flows during the post-SOX period. Findings also indicate that litigious industry firms impart greater information content relative to those in nonlitigious industries prior to SOX being issued and that the SOX effect on discretionary accruals is weaker for such firms as a result.

Suggested Citation

  • Hsihui Chang & Sang-Hyun Suh & Edward Werner & Jian Zhou, 2012. "The effect of SOX on the predictability of future cash flows in litigious and non-litigious industries," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 19(2), pages 210-226.
    • Handle: RePEc:taf:raaexx:v:19:y:2012:i:2:p:210-226
    DOI: 10.1080/16081625.2012.667396
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    Cited by:

    1. Gan, Huiqi & Park, Myung S. & Suh, SangHyun, 2020. "Non-financial performance measures, CEO compensation, and firms’ future value," Journal of Business Research, Elsevier, vol. 110(C), pages 213-227.
    2. Pei Hui Hsu, 2015. "Do financial expert directors affect the incidence of accruals management to meet or beat analyst forecasts?," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 22(4), pages 406-427, December.
    3. Habib, Ahsan & Jiang, Haiyan & Bhuiyan, Md. Borhan Uddin & Islam, Ainul, 2014. "Litigation risk, financial reporting and auditing: A survey of the literature," Research in Accounting Regulation, Elsevier, vol. 26(2), pages 145-163.

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