Ever since its passage in 2002, the effects of the Sarbanes-Oxley Act have been debated in the wake of accounting scandals that rocked confidence after executive malfeasance at Enron, WorldCom and Tyco.
A team of accounting researchers at the University of Arkansas led by assistant professor Juan Michael Sanchez discovered higher turnover rates and severe labor-market penalties for chief financial officers at “restatement” firms (companies asked to restate earnings in compliance with SOX).
Sanchez and his team discovered “little evidence” that the passage of SOX influenced CFO turnover rates, “implying that internal corporate governance mechanisms were working reasonably well in the pre-SOX era.”
That contradicts the implicit assumption in SOX that accountability standards were too low and internal controls were inadequate.
However, in the report to be published in the Journal of Accounting, Auditing and Finance, the UA researches discovered that CFOs associated with restatement firms had more difficulty finding similar positions with other firms or finding jobs at all.
“One of the intended effects of SOX was greater accountability for CFOs,” Sanchez said. “Our study indicates this intention worked. Clearly, a tarnished reputation was more costly for CFOs following the passage of SOX.”
Sanchez said he’s been “humbled” by the attention the report – compiled with UA student Adi Masli and researchers at Texas Tech University and the University of Alabama – has received so far, including a call from CFO magazine.