Economic consequences of SEC regulation pertaining to financial expert definition

Abstract

This paper examines the economic effects of issue dates pertaining to the definition of audit committee financial expert regulation by the U.S. Securities and Exchange Commission (SEC) and discussion of the definition by news services on firms traded on U.S. equity exchanges. This research study uses the methodology of Zhang (2007) to extend DeFond, Hann and Hu (2005) and Krishnan and Visvanathan (2008) by using event dates previously untested to provide additional insights regarding SOX regulation and market perceptions of this required disclosure of voluntary appointment of financial experts to corporate audit committees. Using stock market returns, the findings from this study suggest that companies traded on U.S. capital markets and subject to SEC regulatory requirements experienced significant negative returns around SEC financial expert regulation event dates, while media disclosure events were mostly not significant. Also, larger firms were more negatively impacted than smaller firms by this new SOX requirement.