In this paper, we study the seniority orders between a firm's external debts and its inside-debt compensation to its manager, and analyze how different seniority orders influence equilibrium inside debt and external debt, as well as efficiency. We find the equilibrium inside debt varies with...

In this study, we show that when a firm needs external financing, information quality has real effects via financing contracts on the firm's input to influence its operational outcome. Interestingly, we find that higher information quality decreases overall efficiency. Our analysis highlights...

Conventional wisdom suggests that audit risk disclosure improves the quality of audited financial reports because the disclosure reduces information asymmetry between investors and companies. In contrast, we show that audit risk disclosure provides companies with another channel to influence...

This study investigates the effects of mandatory audit risk disclosure on audit quality, audit fees, and investment efficiency. We consider a two-period model wherein an auditor acquires private information about a company’s risk of material misstatement, thereby reducing the detection risk....

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...