An empirical examination of the impact of the Sarbanes Oxley Act in the reduction of pension expense manipulation

Since the Sarbanes Oxley Act of 2002 (SOX) attempts to make managers more accountable for the fair presentation of reported earnings in their financial statements, we expect managers to manipulate pension expense less during the three years after the passage of SOX than during the three years preceding the passage of SOX. Our results reveal that for smoothing firms the magnitude of pension expense manipulation during the three years after the passage of SOX on average increases instead of decreases. On the other hand, for benchmark firms the magnitude of pension expense manipulation during the three years after the passage of SOX on average decreases as expected. This research provides mixed evidence concerning the effectiveness of SOX in making financial statement reporting more transparent and representative of actual financial position, in the area of pension expense.