Informedness and consensus of accounting disclosures under section 302 of the sarbanes-oxley act: High-tech firms versus low-tech firms

Abstract

This paper draws from the theory explored by Holthausen and Verrecchia (1990) on price and volume behavior and examines initial effects of the overall information contained in 10-Q reports of high-tech firms vis-à-vis low-tech firms on investors' informedness and consensus when Section 302 of the Sarbanes-Oxley Act took effect in 2002. Consistent with the reinforcing effects of informedness and consensus on trading volume, we find that trading volume has decreased post SOX for both high-tech and low-tech firms when we investigate investors' response during a short event window around quarterly reporting dates. However, the effects of informedness and consensus on stock return variability are countervailing, and therefore any decrease or increase in stock return variability depends upon which of the two effects dominates in a particular informational setting. The decrease in stock return variability is found only in high-tech firms, which can be explained by the implementation of more conservative accounting methods in the high-tech sector.