Title: The role of corporate governance during the pre- and post-Sarbanes Oxley periods

Authors: Anthony C. Ng, Yaw M. Mensah

Addresses: School of Accounting and Finance, 7/F Li Ka Shing Tower, The Hong Kong Polytechnic University, Hunghom, Kowloon, Hong Kong. ' Rutgers Business School – Newark and New Brunswick, Dean's Office Suite, 11th Floor, One Washington Park, Newark, NJ 07102, USA; Centre for Governmental Accounting, Education and Research (CGAER), Rutgers Business School – Newark and New Brunswick, Janice Levin Building, 94 Rockafeller Road, Piscataway, NJ 08854, USA

Abstract: This study examines the joint effects of the passing of Sarbanes-Oxley Act (SOX) of 2002 and firm-specific corporate governance mechanisms on the value-relevance of earnings. We find that value-relevance of earnings is significantly different for different sub-periods. We find that good corporate governance (proxied by lack of anti-takeover provisions) has a positive impact on the value-relevance of earnings only during the scandal (SCA) period. These results hold after controlling for changes in institutional ownership and earnings quality (EQ). Our results suggest that there is a substitution effect between good firm-specific corporate governance mechanisms and the strictness of the regulatory environment.

Keywords: corporate governance; earnings quality; earnings value-relevance; Sarbanes-Oxley Act; SOX; institutional ownership; regulatory environment.

DOI: 10.1504/IJCG.2010.035235

International Journal of Corporate Governance, 2010 Vol.2 No.1, pp.58 - 86

Published online: 16 Sep 2010 *

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