Stock market reactions to the Japanese Sarbanes-Oxley Act of 2006

This article investigates stock market reactions to announcements related to the introduction of the Financial Instruments and Exchange Law or the so-called Japanese Sarbanes-Oxley Act (J-SOX), which was enacted to reinforce corporate accountability and responsibility. We find that the announcements leading to the passage of the J-SOX raised stock prices of firms listed on the First Section of the Tokyo Stock Exchange. Another finding is that firms with a high ratio of foreign shareholders or leverage experienced more positive stock price reactions. By contrast, whether the firm was audited by Big 4 audit firms did not seem to matter to investors. In addition, large firms tended to have more negative stock price reactions than small firms.