Abstract Using a large sample of U.S. firms during 1964–2007, we find that conditional conservatism is associated with lower likelihood firm's future stock price crashes. This finding holds for multiple measures and crash risk robust to controlling other known determinants firm‐fixed effects. Moreover, the relation between more pronounced higher information asymmetry. Overall, our results are consistent notion limits managers’ incentive ability overstate performance hide bad news from...

SUMMARY: Using a large sample of U.S. audit client firms over the period 2000–2005, this paper investigates whether and how size local practice office within an firm (hereafter, size) is significant, engagement-specific factor determining quality fees beyond at national level auditor industry leadership city or level. For our empirical tests, measured by unsigned abnormal accruals, in two different ways: one based on number clients each other total earned office. Our results show that has...

Abstract This study examines the association between chief executive officer ( CEO ) overconfidence and future stock price crash risk. Overconfident managers overestimate returns to their investment projects misperceive negative net present value NPV as creating. They also tend ignore or explain away privately observed feedback. As a result, are kept for too long bad performance accumulates, which can lead crashes. Using large sample of firms period 1993–2010, we find that with overconfident...

Abstract In this paper, we investigate whether, and how, audit effectiveness differentiation between Big 6 non‐Big auditors is influenced by a conflict or convergence of reporting incentives faced corporate managers external auditors. so doing, incorporate into our analysis the possibility that self‐select both discretionary accruals, using two stage “treatment effects” model. Our results show only when have to prefer income‐increasing accrual choices are more effective than in...

Abstract Using a large sample of both publicly traded and privately held firms in South Korea (hereafter “Korea”), we investigate whether, how, the deviation controlling shareholders' control from ownership, business group affiliation, listing status differentially affect extent earnings management. Our study yields three major findings. First, find that as control‐ownership disparity becomes larger, shareholders tend to engage more opportunistic management hide their behavior avoid adverse...

The recent financial crisis has stimulated a renewed interest in understanding the determinants of stock price crash risk (i.e., left tail risk). Recent research shows that opaque reports enable managers to hide and accumulate bad news for extended periods. When accumulated reaches certain tipping point, it will be suddenly released market at once, resulting an abrupt decline crash). This study extends this line by examining impact reporting opacity on perceived or expected risk. Prominent...

ABSTRACT Using a sample of borrowing firms that disclosed internal control weaknesses (ICW) under Section 404 the Sarbanes-Oxley Act, this study compares various features loan contracts between with ICW and those without ICW. Our results show following. First, spread is higher for than non-ICW by about 28 basis points, after controlling other known determinants contract terms. Second, more severe, company-level pay significantly rates less account-level Third, lenders impose tighter nonprice...

ABSTRACT: This study examines the impact of International Financial Reporting Standards (IFRS) adoption on audit fees. We first build an analytical fee model to analyze fees for change in both complexity and financial reporting quality brought about by IFRS adoption. then test model's predictions using data from European Union countries that mandated 2005. find mandatory has led increase also IFRS-related premium increases with adoption, decreases improvement arising Finally, we some...

SUMMARY: This study examines whether and how audit quality proxied by the magnitude of absolute discretionary accruals is associated with abnormal fees, that is, difference between actual fee expected, normal level fee. The results various regressions reveal association two asymmetric, depending on sign For observations negative there no significant In contrast, fees are negatively for positive fees. Our findings suggest auditors’ incentives to deter biased financial reporting differ...

SUMMARY Using a large sample of audit client firms, this paper investigates whether and how the geographic proximity between auditor affects quality proxied by accrual-based earnings quality. We define an as local (1) if auditor's practicing office is located in same metropolitan statistical area (MSA) client's headquarters, (2) distance two cities where headquarters are within 100 kilometers, or they MSA. As predicted, our empirical results consistent with auditors providing higher-quality...

ABSTRACT Using brokerage mergers and closures as two sources of exogenous shock to analyst coverage, this study explores the causal effect coverage on ex ante expected crash risk captured by options implied volatility smirk. We find a significant increase in firm's subsequent an drop coverage; positive is stronger for firms initially receiving less coverage. Further, we analysts' ability matters investors' assessment future risk. Specifically, impact more pronounced terminations analysts...

ABSTRACT Managers of China's state-owned firms work in a closed pyramidal managerial labor market. They enjoy non-transferable benefits if they choose to stay within this system. The higher up are market hierarchy (their political ranks), the fewer their outside employment opportunities. Due career and wealth concerns, cautious risk-averse when managing firms. We examine effect managers' ranks on firms' stock price crash risk find negative association. This association mainly exists with...