Conventional wisdom suggests that audit risk disclosure improves the overall efficiency because investors are more informed of a client's financial performance. This view, while intuitive, ignores a potential externality of audit risk disclosure on auditor competence. We consider a two-period...

A broad array of law enforcement strategies, from income tax to bank regulation, involve self-reporting by regulated agents and auditing of some fraction of the reports by the regulating bureau. Standard models of self-reporting strategies assume that although bureaus only have estimates of the...

We analyze a competitive labor market in which workers signal their productivities through education à la Spence (1973), and firms have the option of auditing to learn workers’ productivities. Audits are costly and non–contractible. We characterize the trade–offs between signaling by...

In many real-world settings, an action that affects the value of a product or service is self-reported rather than publicly observable. This, in turn introduces the possibility of misrepresentation. In this paper, we propose a theoretical model of self-reporting. A sender chooses an action and...

This paper aimed to examine the effect of dividend on firm value, as well as the impact of audit quality on the relationship between dividend and firm value in Malaysian firms, which was measured via financial statements audited by four large-sized audit firms (henceforth the Big Four). The...