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Market Uncertainty And Disclosure Of Internal Control Deficiencies Under The Sarbanes-Oxley Act, Yongtae Kim, Myung Seok Park

Accounting

This study examines cross-sectional differences in stock market reactions to the disclosure of internal control deficiencies under Section 302 of the Sarbanes-Oxley Act. We hypothesize that the market punishment for internal control problems will be less severe for internal control disclosure that helps reduce market uncertainty around the disclosure. We also predict that such a relation is dependent on the types of disclosure and the market's prior knowledge of the credibility of firms' financial reporting. Consistent with our hypothesis, we find that when firms disclose their internal control deficiencies, their abnormal stock returns are negatively associated with changes in market …