We investigate the extent to which auditors of U.S. companies reduce fees on initial audit engagements (termed 'fee discounting'). We hypothesize that rivalry among sellers, in terms of client turnover and price competition, is more intense among smaller audit firms. The data support this...

We analyze how investors and information intermediaries perceive auditor tenure. Using earnings response coefficients from returns-earnings regressions as a proxy for investor perceptions of earnings quality, we document a positive association between investor perceptions of earnings quality and...

I examine the effect of various business strategies aimed at sustaining growth on quality and pricing of earnings. Earnings quality is predicted to be high when earnings growth results from sales increases, rather than cost reductions or income management of core and non-core operations, because...

We show that firms reporting sustained increases in both earnings and revenues have (1) higher quality earnings and (2) larger earnings response coefficients (ERCs) in comparison to firms reporting sustained increases in earnings alone. With respect to earnings quality, firms with...

Viewing equity as a call option on the firm's assets with a strike price equal to contractual debt obligations yields an asymmetric prediction on how debt and equity markets view sustained growth. Debt holders are expected to benefit from sustained growth when the default risk is high, while...

This study investigates investor perceptions, proxied by earnings response coefficients (ERCs), of auditor independence-in-appearance as a function of audit and non-audit fees. For a sample of 8,940 firm-years over the 2000-2002 period, we find in separate regressions that ERCs are negatively...

We analyze how investors and information intermediaries perceive auditor tenure. Using earnings response coefficients from returns-earnings regressions as a proxy for investor perceptions of earnings quality, we document a positive association between investor perceptions of earnings quality and...

We document a negative association between the market valuation of a target firm around the announcement date and the target firm's future performance predicted by Value Line. This result is robust after controlling for possible simultaneous equation bias. We provide evidence of a systematic...