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1、DOI:10.1111/j.1475-679X.2008.00315.xJournalofAccountingResearchVol.47No.1March2009PrintedinU.S.A.TheEffectofSOXInternalControlDeficienciesonFirmRiskandCostofEquityHOLLISASHBAUGH-SKAIFE,∗DANIELW.COLLINS,†WILLIAMR.KINNEYJR.,‡ANDRYANLAFOND§Received14April2006;accepted25June2008ABSTRACTTheSar
2、banes-OxleyAct(SOX)mandatesmanagementevaluationandin-dependentauditsofinternalcontroleffectiveness.Themandateiscostlytofirmsbutmayyieldbenefitsthroughlowerinformationriskthattranslatesintolowercostofequity.Weuseunauditedpre–SOX404disclosuresandSOX404auditopinionstoassesshowchangesininterna
3、lcontrolqualityaffectfirmriskandcostofequity.Aftercontrollingforotherriskfactors,wefindthatfirmswithinternalcontroldeficiencieshavesignificantlyhigheridiosyncraticrisk,systematicrisk,andcostofequity.Ourchangeanalysesdocumentthatauditor-confirmedchangesininternalcontroleffectiveness(includingre
4、mediationofpreviouslydisclosedinternalcontroldeficiencies)arefollowedbysignificantchangesinthecostofequitythatrangefrom50to150basispoints.Overall,ourcross-sectionalandintertemporalchangetestresultsareconsistentwithinternalcontrolreportsaffectinginvestors’riskassessmentsandfirms’costofequity
5、.∗UniversityofWisconsin–Madison;†UniversityofIowa;‡UniversityofTexasatAustin;§BarclaysGlobalInvestors.WethankLynnTurner,ananonymousreferee,andworkshopparticipantsattheUniversityofCalifornia–Irvine,ColumbiaUniversity,GeorgiaStateUni-versity,NanyangTechnologicalUniversity,SingaporeManageme
6、ntUniversity,UniversityofTechnology–Sydney,theUniversityofTennessee,andtheUniversityofTexasforhelpfulcom-mentsandsuggestions.WealsothankGlassLewis&Co.fordataassistance.1CopyrightC,UniversityofChicagoonbehalfoftheInstituteofProfessionalAccounting,20082H.ASHBAUGH-SKAIFE,D.W.COLLINS,W.R.KI
7、NNEYJR.,ANDR.LAFOND1.IntroductionPriorresearchontheimpactoftheSarbanes-OxleyAct(SOX)(U.S.Congress[2002])focusesprimarilyonthecostofitsinternalcontrolre-portingandauditrequirements.Inthisstudy,weexploretherelationbe-tweeninternalcontrolqualityandidiosyncraticandsystematicr
