An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Gerald J. Lobo
University of Houston

Wei Zhang
Clarkson University

Jian Zhou
SUNY At Binghamton

Abstract: Previous research such as Cohen, Dey and Lys (2005) and Lobo and Zhou (2006) document that there is a decrease in discretionary accruals following the Sarbanes-Oxley Act (hereafter SOX). In this paper, we present evidence that firms with stronger governance experienced a lower reduction in discretionary accruals in the post-SOX period. This study provides further evidence of the impact of corporate governance on managers’ discretionary accounting decisions. More specifically, this study shows that the decrease in discretionary accruals behavior in the post-SOX period is not homogeneous across sample firms; it is inversely related to the quality of corporate governance.

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