This paper studies how legal liability due to negligence can weaken or strengthen an auditor's reputation concerns in … threshold for the level of due care. When the negligence standard is lax, legal liability can weaken the auditor's reputation …. When the standard is stringent, noncompliance is less costly for the auditor, but legal liability strengthens reputation …

This study examines whether boards of directors use external auditing to protect their reputation capital. We … hypothesize and find that audit quality increases with the level of directors' reputation capital. More specifically, using ten …-year panel data on Finnish listed companies, we find that our measures of reputation capital based on the number of directorships …

guides subsequent investment. We provide a positive theory of disclosure that reflects both functions of a secondary market … theory generates new testable predictions and reconciles disclosure with other parts of securities regulation that encourage …

results extend the theory to classic models in finance such as Leland and Pyle (1977), Glosten (1989), and DeMarzo and Duffie …