The Market Reaction to SOX 302 Disclosures.

• In Event: Sox Compliance and Corporate Governance

Abstract

Section 302 of the Sarbanes-Oxley Act of 2002 requires public companies to make a quarterly disclosure about the effectiveness of their disclosure controls and procedures. I examine the information content of these disclosures and find that the market generally does not react to these disclosures except in the case of non-accelerated filers. I provide evidence that the reason for this is not the richness of the accelerated filers’ information environment; rather, it is because of the reliance of these entities’ investors on the assurance provided by the external auditor. The study also demonstrates that auditors reporting on internal control take into consideration the management’s report on deficiencies in the disclosure and control producers.

Author

• Essam Elshafie, Northeastern Illinois University