How Sarbanes-Oxley Changed Firms’ Responses to Announcements of Earnings Restatements

Among the many goals of the Sarbanes-Oxley legislation was to increase CEOs’ accountability for the veracity of financial statements by requiring that they personally certify financial disclosures. Although that provision has not led to  successful prosecutions of offending executives, our research finds that the act has had a related impact, although by way of an unexpected mechanism.

In our recent paper, Shine a Light: How Firm Responses to Announcing Earnings Restatements Changed After Sarbanes-Oxley, we find that firms forced to restate earnings are much more likely to replace their CEOs than they were before Sarbanes-Oxley was enacted. This is … Read more