Has Sarbanes-Oxley improved quarterly financial reporting quality? An examination of the effects of SOX sections 302 and 906

This paper examines whether the SOX 302 and 906 provisions improve quarterly financial reporting quality. In the post SOX 302 and 906 environment, managers are required to certify the accuracy of the quarterly financial statements, and false certification carries new criminal penalties. Specifically, this paper studies whether, on a quarterly basis, the absolute value of performance-adjusted abnormal accruals decline following the implementation of SOX 302 and 906. My results indicate that quarterly financial reporting improves after SOX 302 and 906 for firms that exhibit aggressive earnings management in the pre-SOX period, while quarterly financial reporting quality decreases for firms that exhibit low earnings management in the pre-SOX period. These results suggest that SOX 302 and 906 might be more effective at constraining earnings management behavior for those firms that had used it most aggressively pre-SOX.