The Sarbanes-Oxley act and the production efficiency of public accounting firms in supplying accounting auditing and consulting services: an application of data envelopment analysis

Abstract

In this paper, we employ alternate techniques to examine whether passage of the Sarbanes-Oxley (SOX) Act has had positive effects on the efficiency of public accounting firms. These alternate techniques extend from use of the non-parametric, 'frontier'-oriented method of Data Envelopment Analysis (DEA), and include more traditional regression-based approaches using central tendency estimates. Using data from 58 of the 100 largest accounting firms in the USA, we find that efficiency increased at high levels of statistical significance and discover that this result is consistent for all of the different methods - frontier and central tendencies used in this paper. We also find that this result is not affected by inclusion or exclusion of the Big 4 firms. All results are found to be robust as well as consistent.