Managerial Entrenchment and Value-Relevance of Earnings During the Pre- and Post- Sarbanes Oxley Periods

49 Pages Posted: 5 Oct 2007

See all articles by Anthony C. Ng

Anthony C. Ng

The University of Melbourne, Faculty of Business and Economics, Department of Economics; Sunway University

Ferdinand A. Gul

Monash University Sunway Campus

Yaw M. Mensah

Rutgers Business School - Newark & New Brunswick

Date Written: September 2007

Abstract

This study examines the effect of the passing of Sarbanes-Oxley Act (SOX) of 2002 as well as managerial entrenchment characteristics of corporations on the value-relevance of earnings. Our sample of observations is partitioned into three sub-periods: the Pre-Scandal (Pre-SCA) period, the Enron scandal (SCA) period, and the period after the passage of the Sarbanes-Oxley Act (Post-SOX). We find that the value-relevance of earnings is significantly different for the three sub-periods. Using the existence of anti-managerial-entrenchment mechanisms as a measure of good corporate governance, we find that these measures have a positive impact on the value-relevance of earnings only during the SCA period. Furthermore, the positive impact only applies to firms that engaged in income-decreasing earnings managements during the prior year. We conclude that, from the standpoint of investors, there appears to be a substitution effect between good firm-specific corporate governance mechanisms and the strictness of the regulatory environment.

Keywords: Managerial Entrenchment, Corporate Governance, Value relevance of earnings, Sarbanes-Oxley Act

JEL Classification: G34, G14, K22

Suggested Citation

Ng, Anthony C. and Gul, Ferdinand A. and Mensah, Yaw M., Managerial Entrenchment and Value-Relevance of Earnings During the Pre- and Post- Sarbanes Oxley Periods (September 2007). Available at SSRN: https://ssrn.com/abstract=1012746 or http://dx.doi.org/10.2139/ssrn.1012746

Anthony C. Ng (Contact Author)

The University of Melbourne, Faculty of Business and Economics, Department of Economics ( email )

Level 4, Faculty of Business and Economics
111 Barry Street
Carlton, VIC 3010
Australia

Sunway University ( email )

No 5 Jalan University
Bandar Sunway
Bandar sunway, Selangor 47500
Malaysia

Ferdinand A. Gul

Monash University Sunway Campus ( email )

Jalan Lagoon Selatan
Selangor Darul Ehsan
Bandar Sunway, 46150
Malaysia

Yaw M. Mensah

Rutgers Business School - Newark & New Brunswick ( email )

100 Rockafeller Road
Piscataway, NJ 08854
United States
848.445.4369 (Phone)
732.445.0351 (Fax)

HOME PAGE: http://business.rutgers.edu

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
367
Abstract Views
2,269
Rank
148,889
PlumX Metrics