when liquidation would be value-increasing. To curb fraud, shareholders optimally choose auditing quality and the … performance sensitivity of managerial pay, taking external corporate governance and auditing regulation into account. For given … managerial pay, it is optimal to rely on auditing when external governance is in an intermediate range. When both auditing and …

. Thirdly, the excess return on new issues is negatively associated with the quality of accounting standards. We interpret the … shareholders' legal protection and of accounting standards can instead be seen as resulting from the implied reduction in … shareholders' auditing and monitoring costs. …