Market reactions to the disclosure of internal control weaknesses under the Japanese Sarbanes-Oxley Act of 2006

Hiroyasu Kawanishi, Fumiko Takeda

Research output: Chapter in Book/Report/Conference proceedingChapter

1 Citation (Scopus)

Abstract

This article investigates how the stock market reacts to the disclosure of internal control deficiencies under the Japanese Sarbanes-Oxley Act of 2006. Given that the Japanese official agencies attempted to minimize the negative shock caused by the disclosure, we find no stock market reactions on the whole to the disclosure of internal control weaknesses. We also show that negative market reactions are intensified if firms have changed auditors in recent years, have uncertainties over their ability to continue as a going concern, have larger assets or fixed debts, or are listed on the emerging stock exchanges. In contrast, negative stock reactions are mitigated when firms have high ratios of foreign shareholders or current liabilities. Another interesting finding is that whether a firm engages a Big 4 audit firm does not seem to matter to investors evaluating firms with internal control weaknesses

Original languageEnglish
Title of host publicationThe Stock Market
Subtitle of host publicationCrisis, Recovery and Emerging Economies
PublisherNova Science Publishers, Inc.
Pages119-134
Number of pages16
ISBN (Print)9781611225457
Publication statusPublished - 2011 Jan
Externally publishedYes

Keywords

  • Disclosure
  • Event study
  • Internal control report system
  • Sarbanes-oxley act

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • General Social Sciences

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