Canadian firms have different roots (e.g., more concentrated ownership and smaller size) than U.S. firms and Canadian regulatory enforcement follows a different route (principle- versus rule-based) that embodies the underlying intent of Sarbanes–Oxley (SOX). Financial restatements are more likely when Canadian firms have lower blockholder or management ownerships, lower proportions of unrelated directors, no financial savvy audit committee members and are not audited by prestigious auditing firms. To signal that they are dealing with the impact of agency problems on cash flow uncertainties, restating firms exhibit significantly higher turnovers of CEOs, CFOs and external auditors post-restatement, and they converge towards control-group governance post-restatement by making changes to the identified determinants of financial restatement likelihood. Consistent with prior results for U.S. firms, SOX had a small (extraterritorial) impact on the likelihood of post-restatement turnovers of management and other corporate overseers for Canadian restating firms.

We examine if an existing asset pricing model in an unconditional or conditional setting can explain the investment growth anomaly, as represented by higher returns on stocks of the firms with lower growth in capital expenditures. Our results indicate that the conditional Fama–French 3-factor model that allows factor loadings to be time-varying and further linked to firm-level characteristics and the business cycle can explain the anomaly.