The impact of Sarbanes-Oxley act on cosmetic earnings management

Aono, June Y.; Guan, Liming

doi:10.1016/s1052-0457(07)00212-3

Cited by 23 publications

(19 citation statements)

References 10 publications

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“…Similar evidence of earnings management by “rounding of figures” is found in many other studies conducted in different countries (Das & Zhang, ; Guan, He, & Yang, ; Kinnunen & Koskela, ; Lin & Wu, ; Saville, ; Skousen, Guan, & Wetzel, ; van Caneghem, ). A policy research study using Benford's Law, however, showed that cosmetic earnings management “noticeably decreased” after the Sarbanes‐Oxley Act of (Aono & Guan, ).…”

Section: Studying Ceo Pay Using Benford's Lawmentioning

confidence: 99%

“…Benford's Law, however, showed that cosmetic earnings management "noticeably decreased" after the Sarbanes-Oxley Act of 2002 (Aono & Guan, 2008).…”

Section: Benford's Lawmentioning

confidence: 99%

“…Next, we will try to determine whether the Sarbanes‐Oxley Act has brought about any changes in the way in which CEOs negotiate their compensation. Especially given the growing evidence in support of the view that these regulations have indeed reduced some of the executive power at the top (Aono & Guan, ). We found evidence supporting the hypothesis that post‐SOX, CEOs have changed their negotiating tactics.…”

Section: Introductionmentioning

confidence: 99%

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Can Benford's Law explain CEO pay?

Mukherjee

2017

Corporate Governance

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Manuscript Type Empirical Research Question/Issue This study applies the statistical properties of Benford's Law to CEO pay. Benford's “Law” states that in an unbiased dataset, the first digit values are usually unequally allocated when considering the logical expectations of equal distribution. In this study we question whether the striking empirical properties of Benford's Law could be used to analyze the negotiating power and preferences of CEOs. We argue that performance‐based or market‐determined compensations should follow Benford's Law, demonstrating no direct negotiation by the CEOs. Conversely, deviation from Benford's Law could reveal CEO negotiating power or even preference. Research Findings/Insights Our analysis shows that market‐determined “Option Fair Value” (the dollar value of stock options when exercised) conforms closely to Benford's Law, as opposed to “Salary”, which is fully negotiated. “Bonus”, “Option Award”, and “Total Compensation” are generally also largely consistent with Benford's Law, but with some exceptions. We interpret these exceptions as negotiation by the CEOs. Surprisingly, we found that CEOs prefer to be paid in round figure values, especially “5”. We use Benford's Law to study the negotiating powers of CEOs vs. that of other executives. Finally, we compare the negotiating tactics of CEOs before and after SOX and analyze the impact of firm size on their compensation. Theoretical/Academic Implications This study introduces Benford's Law and its applications within the corporate governance literature. Practitioner/Policy Implications This method could be used by academics, industry and regulators to uncover compensation patterns within large business departments and/or organizations or even entire industry segments.

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Section: Studying Ceo Pay Using Benford's Lawmentioning

confidence: 99%

“…Benford's Law, however, showed that cosmetic earnings management "noticeably decreased" after the Sarbanes-Oxley Act of 2002 (Aono & Guan, 2008).…”

Section: Benford's Lawmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Can Benford's Law explain CEO pay?

Mukherjee

2017

Corporate Governance

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“…(2006) havaitsivat yhdysvaltalaisista pörssiyhtiöistä kerätystä aineistosta, että kosmeettista tuloksenohjausta tapahtuu raportoinnissa kaikilla kvartaaleilla, mutta merkittävästi vähemmän neljännellä kvartaalilla, jolloin tulosraportointi on tilintarkastuksen kohteena. Aono ja Guan (2008) raportoivat, että Sarbanes-Oxley-asetus, jonka tavoitteena on ollut parantaa taloudellisen raportoinnin tasoa, vähensi kosmeettista tuloksenjärjestelyä Yhdysvalloissa merkittävästi. Lin ja Wu (2014) vertailivat taiwanilaisia ja yhdysvaltalaisia pörssiyhtiöitä ja havaitsivat, että kosmeettinen tuloksenohjaus on suurempaa Taiwanissa, minkä he katsovat johtuvan vähäisemmästä sijoittajan suojasta ja sääntelystä verrattuna Yhdysvaltoihin.…”

Section: Selityksiä Kosmeettiselle Tuloksenohjaukselleunclassified

Näkökulmia tilintarkastukseen ja arviointiin

Leponiemi¹,

Ruohonen²,

Wacker³

et al. 2017

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“…Furthermore, after the passage of Sarbanes-Oxley Act in 2002 (U.S. House of Representatives 2002) (hereafter SOX), executives had less incentives to use their discretions manipulating earning and they tended to be more conservative when encountering increased regulatory liability. Aono & Guan (2007) and Zhou (2007) observe that the Sarbanes-Oxley Act (SOX) was successful in deterring accrual-based earnings management. Similarly, Lobo and Zhou (2006) reported that firms used less discretionary accruals after SOX.…”

Section: Introductionmentioning

confidence: 99%

Is Earnings Information Superior to Net Income as a Measure of Future Earnings? A Study on Accruals and Real Earnings Management

Lee¹,

Lu²

2014

International Journal of Financial Research

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This study examines the incremental information content of components of earnings by regressing future net income of earnings' components in a series of multivariate models. We find that the components of operating cash flow and accruals provide more information to effectively predict future profitability, particularly when we dismantles financial measurements into various combinations of operating cash flow and accrual-based components. However, the components of real earnings management provide less information of future profitability. We observe that the more informative the information content of earnings is, the more precise the prediction of future profitability can be.

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The impact of Sarbanes-Oxley act on cosmetic earnings management

Cited by 23 publications

References 10 publications

Can Benford's Law explain CEO pay?

Can Benford's Law explain CEO pay?

Näkökulmia tilintarkastukseen ja arviointiin

Is Earnings Information Superior to Net Income as a Measure of Future Earnings? A Study on Accruals and Real Earnings Management

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