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Information Asymmetry Determinants of Sarbanes-Oxley Wealth Effects

Authors

  • Aigbe Akhigbe,

    1. Aigbe Akhigbe is the Moyer Chair and Professor of Finance in the College of Business Administration at the University of Akron in Akron, OH.
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  • Anna D. Martin,

    1. Anna D. Martin is the Theis Chair and Professor of Finance in the Tobin College of Business at St. John's University in Queens, NY.
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  • Melinda L. Newman

    1. Melinda L. Newman is an Associate Professor of Finance in the College of Business Administration at the University of Akron in Akron, OH.
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  • We thank Bill Christie (the editor) and an anonymous reviewer for their insightful comments and gratefully acknowledge financial support from the Moyer endowment at the University of Akron and the Theis endowment at St. John's University.

Abstract

We investigate the roles of information asymmetry and governance in the wealth effects associated with passage of the Sarbanes-Oxley Act (SOX) for a sample of 1,158 firms. For events suggesting adoption of stringent reform legislation, we find more (less) favorable abnormal returns (ARs) for firms with high (low) information asymmetry and for firms with weak (strong) governance. More favorable effects could result from expected improvements for firms with high information asymmetry or weak governance. Firms with positive ARs experience information asymmetry reductions post-SOX, indicating the market was able to discern the firms that would most benefit from the legislation's passage.

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