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11 – 20 of over 3000Colin Linsley and Christine Linsley
The purpose of this paper is to demonstrate the value of behavioural psychology when considering the effects of legislation on senior management behaviour. Use is made of the…
Abstract
Purpose
The purpose of this paper is to demonstrate the value of behavioural psychology when considering the effects of legislation on senior management behaviour. Use is made of the Sarbanes‐Oxley Act of 2002 and the corporate failures that led to its passage.
Design/methodology/approach
The insights of behavioural psychology are discussed and then applied to the situation of senior management faced with reacting to new legislation.
Findings
It is found that this approach predicts that the effects on management behaviour may be greater than (and in any case will be different from) the effects resulting from using a more traditional approach of law and economics
Research limitations/implications
No original research is performed. It does however show that further research using this approach has much potential.
Practical implications
As the paper looks at the effect of legislation on management behaviour this paper shows the value of the behavioural approach to both those who propose legislation and those who study its effects.
Originality/value
No original work is presented but the paper is useful in showing readers not familiar with this approach of its usefulness.
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Erastus Karanja and Jigish Zaveri
In most firms, accounting and financial information and reporting systems are either incorporated or embedded in computer-based information systems (IS). Despite the important…
Abstract
Purpose
In most firms, accounting and financial information and reporting systems are either incorporated or embedded in computer-based information systems (IS). Despite the important roles that these computer-based IS play in facilitating the SOX Act compliance initiatives, the act is silent on the roles of the CIOs, although it does stipulate specific functions for the CEOs, CFOs, and the auditors. Based on a detailed analysis of the extant literature, this article argues that IT units, under the leadership of the CIOs, contribute significantly in the procurement, design, implementation, and the governance of these computer-based IS. The paper aims to discuss these issues.
Design/methodology/approach
The researchers generate and empirically test hypotheses using a panel data set obtained from press releases issued by firms following the hiring of CIOs between 1999 and 2005.
Findings
The results reveal that, after the enactment of the SOX Act in 2002, many firms hired new CIOs in the post-SOX Act period. Also, many of these executives were hired to fill newly created Chief information officer (CIO) positions. The results support the argument that the SOX Act has influenced the roles of senior IT executives and IT governance.
Research limitations/implications
Although this study focused on hiring trends, there are other characteristics associated with CIOs that might have an impact on corporate IT governance. Future studies could investigate whether or not, for instance, firms reported fewer IT material weaknesses before or after the hire of the CIOs.
Originality/value
This research presents the argument and detailed discussion that while the SOX Act does not explicitly require the CIOs to sign off on the accounting/financial statements and reports, their role is fundamental in making the firm meet the SOX Act compliance standards.
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If the past 30 years of history have taught anything, it is that white‐collar offenders often run afoul of the law by their participation in cover‐ups rather than their part in a…
Abstract
If the past 30 years of history have taught anything, it is that white‐collar offenders often run afoul of the law by their participation in cover‐ups rather than their part in a substantive criminal offenses. In August 1974, President Richard Nixon was forced to resign as President of the United States ‐ not because of the Watergate break in itself, but his attempts to cover it up. President Clinton was impeached and narrowly avoided indictment ‐ not for his sexual escapades with Monica Lewinsky, but his attempt to redefine the word “is” during his testimony at a deposition. Recently, we have seen the demise of Arthur Andersen, LLP ‐ not as the result of a securities fraud conviction, but a conviction for obstruction of justice. Frank Quattrone was indicted recently for allegedly counseling the destruction of documents, and Martha Stewart was indicted, not for insider trading or the alleged conduct that first brought her under the microscope of the Securities and Exchange Commission (“SEC”) and Department of Justice (“DOJ”), but allegedly for misleading federal agents. This article will review the current round of indictments against Wall Street luminaries for obstruction, as well as the new obstruction provisions of the Sarbanes‐Oxley Act. It then will make some observations on how these events should impact a corporation’s document retention policy. Finally, it will discuss how compliance programs that aim to enforce the laws of this country and assist governmental inquiries may actually ensnare corporation employees in an obstruction trap.
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The South African Companies Act of 2008 (SACA2008) seeks to reaffirm the company as a means of promoting the economic welfare and development of South Africa by encouraging…
Abstract
Purpose
The South African Companies Act of 2008 (SACA2008) seeks to reaffirm the company as a means of promoting the economic welfare and development of South Africa by encouraging efficient, transparent value‐additive corporate management. The purpose of this paper is to present the important role of the cost of capital for financial valuations that are consistent with the purposes of SACA2008, as stated in Section 7.
Design/methodology/approach
The relevant sections of SACA2008 of this legislation were studied. The role of the cost of capital in performing and interpreting financial valuations was presented. As the CAPM is widely used, and in cases is the only approach used to estimate the cost of capital, an update of CAPM empirical evidence was presented to affirm the conclusion by Fama and French that the CAPM is not an acceptable way of estimating the cost of capital. The Sarbanes‐Oxley Act of 2002 (SOX) was studied to ascertain the implication of using valuation criteria that lack empirical validity.
Findings
Management that makes financial decisions on the basis of criteria that have not been empirically validated may find it difficult to defend challenges to their efforts at complying with SACA2008 and promoting the success of the company.
Originality/value
From an extensive survey of publicly available literature, there is no evidence to suggest that research on the role of the cost of capital in helping achieve the purposes of SACA2008 has been published. Without a valid and reliable cost of capital it will be difficult to achieve the purposes of this legislation.
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The USA Patriot Act, Sarbanes‐Oxley, proxy voting disclosure, privacy regulations under Gramm‐Leach‐Bliley, fair valuation, hedge fund scrutiny, and the list goes on and on. Over…
Abstract
The USA Patriot Act, Sarbanes‐Oxley, proxy voting disclosure, privacy regulations under Gramm‐Leach‐Bliley, fair valuation, hedge fund scrutiny, and the list goes on and on. Over the past two years, we have seen the Securities and Exchange Commission launch the most aggressive and far‐reaching reform agenda for the investment management industry in its history, and new regulations are sure to follow even as investment managers, fund boards and compliance officers struggle to implement and oversee existing rules. In today’s dynamic multi‐regulatory environment with its heightened level of accountability, the stakes of non‐compliance are higher than ever for investment companies. It is essential that they are assured their compliance and inspection procedures are thorough and well‐documented to withstand the intense scrutiny of not only the Commission but also of the investing public, which is increasingly litigious.
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Andrea Bather and Priscilla Burnaby
To investigate some unanswered questions and issues relating to the Public Company Accounting Oversight Board (PCAOB) and to consider the implications of this rule making model…
Abstract
Purpose
To investigate some unanswered questions and issues relating to the Public Company Accounting Oversight Board (PCAOB) and to consider the implications of this rule making model that was created in an environment of corporate financial collapses for a jurisdiction without such an environment.
Methodology
This paper uses text analysis by the authors as a basis for commentary and opinion on the need for and reaction to The Sarbanes‐Oxley Act 2002 (SOX). It is a pragmatic approach to issues which the authors feel has not been sufficiently considered.
Findings
It is clear to the authors that significant questions arise with the creation of a regulatory framework designed with public perception in mind. The issues have been in existence long before the passage of SOX. There are more questions than answers at this stage, particularly in light of the international implications of SOX.
Practical implications
Changes in the practice of auditing and reporting issues for all companies that sell shares in US markets will be affected. New Zealand is provided as an example of the implications for international convergence of PCAOB like regulation boards that may be created as an alternative framework to the current self‐regulation of auditors. Much consideration should be given to the implications of the new regulatory framework before its imposition on jurisdictions where the environment does not call for such “drastic” change.
Originality/value
Much has been written on the PCAOB, but without consideration necessarily of the international implications. In particular, the tensions facing small countries such as New Zealand have not been discussed, which seek to be part of the international community of capital markets. This paper seeks to fill some of these gaps.
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Sharad Asthana, Steven Balsam and Sungsoo Kim
The purpose of this paper is to examine the effect of the Enron scandal, Arthur Andersen's demise and the Sarbanes‐Oxley Act on audit fees.
Abstract
Purpose
The purpose of this paper is to examine the effect of the Enron scandal, Arthur Andersen's demise and the Sarbanes‐Oxley Act on audit fees.
Design/methodology/approach
The paper uses empirical methodology (univariate and multivariate).
Findings
Audit fees and the Big‐4 premium increased in 2002. Increase was larger for bigger and riskier clients. Evidence is also consistent with a competitive market for former Andersen clients.
Research limitations/implications
Data requirements might bias the sample towards larger sized firms. Data availability limits the number of observations.
Practical implications
The research findings on audit fees in post‐Enron and Arthur Andersen period reported in this paper are important for policy makers.
Originality/value
It is found that the premium charged by Big 4 over non‐Big 4 has increased in 2002, and that the ability of an auditor to charge a premium is adversely affected when its reputation is tarnished. It is also reported that the frequency of voluntary switches within the Big 4 is lowest in 19 years. The audit fee model was also refined by adding two ownership variables to control for agency aspect of client firms; inside and institutional ownership.
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Richard J. Parrino and Peter J. Romeo
The purpose of this paper is to review the principal provisions of the Jumpstart Our Business Startups (JOBS) Act, which was enacted in April 2012 and represents significant…
Abstract
Purpose
The purpose of this paper is to review the principal provisions of the Jumpstart Our Business Startups (JOBS) Act, which was enacted in April 2012 and represents significant legislative reform of securities regulation in the USA.
Design/methodology/approach
The paper examines the modified US securities regulatory regime introduced for initial public offerings and SEC reporting by a newly designated class of smaller securities issuers referred to as “emerging growth companies” and summarizes reforms to the regulation of capital‐raising transactions by small issuers and other companies that are intended to facilitate the creation of new jobs by easing regulatory burdens.
Findings
The JOBS Act should meet its objective of providing emerging growth companies, at reduced cost, with an orderly transition from a private existence with relatively few securities‐law concerns to a public one with numerous compliance obligations. Companies also will have greater opportunities to access capital through the availability of additional exemptions from Securities Act registration and the elimination of some restrictions on offering‐related communications with investors. The relaxation or elimination of long‐accepted methods for minimizing fraud and abuse in securities offerings, however, could result in a significant increase in investment scams and other wrongdoing.
Originality/value
The paper provides expert guidance from experienced financial services lawyers.
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Linda Hughen, Mahfuja Malik and Eunsup Daniel Shim
The recent economic and political focus on rising income inequality and the extent of government intervention into pay policies has renewed the interest in executive compensation…
Abstract
Purpose
The recent economic and political focus on rising income inequality and the extent of government intervention into pay policies has renewed the interest in executive compensation. The purpose of this paper is to examine the impact of changing regulatory landscapes on executive pay and its components.
Design/methodology/approach
This study examines a recent 23-year period divided into three distinct intervals separated by two major regulatory changes, the Sarbanes–Oxley Act (SOX) and the Dodd–Frank Act. Bonus, long-term and total compensation are separately modeled as a function of each regulatory change while controlling for firm size, performance and year. The model is estimated using panel data with firm fixed effects. An industry analysis is also conducted to examine sector variations.
Findings
Total compensation increased 29 percent following SOX and 21 percent following Dodd–Frank, above what can be explained by size, firm performance and time. Total compensation increased following both SOX and Dodd–Frank in all industries except for the financial services industry where total compensation was unchanged. Results are robust to using smaller windows around each regulation.
Research limitations/implications
This study does not seek to determine whether executive compensation is at an optimal level at any point in time. Instead, this study focuses only on the change in executive compensation after two specific regulations.
Originality/value
The debate over the extent to which the government should intervene with executive compensation has become a frequent part of political and non-political discourse. This paper provides evidence that over the long-term, regulation does not curtail executive compensation. An important exception is that total compensation was restrained for financial services firms following the Dodd–Frank Act.
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John W. Kensinger and Stephen L. Poe
This paper explores the advantages (for large investors) of directly owning productive assets, compared with indirect ownership through stock in corporations. Significant factors…
Abstract
This paper explores the advantages (for large investors) of directly owning productive assets, compared with indirect ownership through stock in corporations. Significant factors are agency costs and recent changes in the tax and regulatory environment. Recent corporate scandals have led to legislative and regulatory responses that significantly increase the monitoring costs and other burdens of becoming or remaining a public corporation. As a result, there has been a substantial increase in going-private transactions, particularly among smaller public companies. However, the pressures to go private are not entirely new. We trace the legal concept that the corporation is an entity separate and apart from its owners, showing how the legal status of corporations hinders resolution of conflicts among the parties to the enterprise. Thus, there have long been fundamental flaws inherent in the corporation as the form of organization for certain activities. Direct ownership of major assets by investors prevents future expropriation of resources, and is preferable to corporate ownership whenever other alternatives for indemnification or liability limitation are available (such as insurance, limited partnerships, limited liability companies, etc.). Finally, the renewal of direct ownership is not a radical shift, but a return to long-established tradition in the organization of business activities.