Effect of Matherial Weaknesses on Stock Exchange Market

EFFECTS OF MATERIAL WEAKNESS ON STOCK EXCHANGE MARKET
The impact of Sarbanes Oxley Act in companies’ share price

Ronnie Damonte

Month Year

School of Business Administration

TABLE OF CONTENTS:

1. INTRODUCTION 3
1.1 Background Information. 3
1.2 Objectives of the Research. 3
1.2 Research Questions. 4
1.3 Methods. 4 2. SARBANES OXLEY ACT 5
2.1 What is the “Sarbanes Oxley Act”? 5
2.2 SOX genesis. 5 2.2.1 Toward the SOX. 5 2.2.2 The development of SOX bill. 6
2.3 Structure and contents of Sarbanes Oxley Act. 8 2.3.1 - 100s Public Company Accounting Oversight Board. 8 2.3.2 - 200s Auditor Independence. 8 2.3.3 – 300s Behavior and Compensation of CEO, CFO and professional advisors. 9 2.3.4 – 400s Disclosure Rules. 11 2.3.5 – 500s Conflicts of Analyst Interest. 12 2.3.6 – 600s Funding; 800, 900, 1100s Disciplining Transgressors. 13
2.4 SOX Section 404. 13 2.4.1 Overview of Section 404. 13 2.4.2 Internal Auditor Role in Section 404. 14 2.4.3 Definition of deficiencies in internal control system. 15
2.5 Market reactions after SOX. 16 3. IMPLEMENTATION OF THE RESEARCH 18
3.1 Selection of the study sample. 18
3.2 Research methodology. 21 3.2.1 Average variation analysis. 21 3.2.2 Gaussian distribution analysis. 22 4. EMPIRICAL TEST AND RESULTS 27
4.1 Introduction. 27
4.2 Results of the average variation analysis. 28 4.2.1 Calculation of the company stock trend. 28 4.2.3 Calculation of the average variation. 29
4.3 Results of the Gaussian distribution analysis for the entire sample. 32
4.4 Results of the Gaussian distribution analysis applied to the type of industry. 35 4.4.1 Automotive and transport. 35 4.4.2 Construction. 36 4.4.3 Consumer product manufacturers. 37 4.4.4 Consumer services. 38 4.4.5 Electronics. 39 4.4.6 Energy and utilities. 40 4.4.7 Financial services. 41 4.4.8 Industrial manufacturing. 42 4.4.9 Media. 43 4.4.10 Pharmaceutical. 44
4.5 Results of the Gaussian

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