We consider a setting in which insiders have information about income that outside shareholders do not, but property rights ensure that outside shareholders can enforce a fair payout. To avoid intervention, insiders report income consistent with outsiders' expectations based on publicly...

In this paper we test whether the amount and/or quality of financial statement information affect the financial structure of Small and Medium Enterprises (SMEs). We explore this issue for Belgian SMEs because there are important differences in disclosure and audit requirements among them....

This study examines the factors that lead to issuing negative opinions on semiannual reports while issuing positive opinions in annual reports from the perspective of auditor-client relationships in listed companies in Taiwan. The empirical results show that the importance of the client is...

This study examines whether auditors are employed as a monitoring mechanism to mitigate agency problems arising from different types of controlling shareholders. In a context of ownership concentration and poor investor protection, controlling shareholders can easily expropriate minority...

Evidence about the effect of voluntary audits on the cost of debt is mixed, and there is no research about the effects of mandatory audits and the non-compliance with the audit requirement. Using a sample of Spanish SMEs, where some companies are exempt from audit and some are mandatorily...

We develop a theory of income and payout smoothing by firms when insiders know more about income than outside shareholders, but property rights ensure that outsiders can enforce a fair payout. Insiders set payout to meet outsiders' expectations and underproduce to manage downward future...

This teaching guide is based on a comprehensive survey as well as in-depth interviews of Chief Financial Officers (CFOs). We ask the CFOs about the definition and drivers of earnings quality, with a special emphasis on the prevalence and detection of earnings misrepresentation. CFOs believe that...

Auditing failures and scandals have become commonplace. In response, reformers (including the Kingman Review in the U.K and a recent report of the U.K.'s Competition and Market Authority) have proposed a variety of remedies, including prophylactic bans on auditors providing consulting services...

We study how informed, strategic trading affects audit quality and investment efficiency. With the auditor's legal liability payment based on the decrease in the market price after an audit failure, informed trading provides a hedge to the auditor against legal liability risk. This weakens...

Starting in October 2013, auditors of premium-listed firms in the UK are mandated to prepare an expanded audit report that provides details on audit procedures, main risks of material misstatement (RMMs), and materiality thresholds. We hypothesize that the expanded audit disclosures decrease...