Auditor independence, ‘low balling’, and disclosure regulation
Cites background or methods from "Auditor independence, ‘low balling’..."
...This outcome appears to result from both greater expertise (effectiveness) and stronger incentives to constrain misreporting (DeAngelo, 1981)....
...Audit fees and auditor tenure are predicted to be positively correlated with auditor expertise, and hence with detection ability, but they are also predicted to be negatively associated with auditor independence and hence with decreased reporting incentives (DeAngelo, 1981)....
...Dechow et al. (1996) find an increase in residual bid ask spread for AAER firms....
...129 (that excludes depreciation); (iii) the absolute value of the residual from a Dechow and Dichev model; (iv) the standard deviation of the residual from (iii) using the time-series of the firm’s residual (i.e., as in FLOS). Aboody, Hughes, and Liu (2005) find that a mimicking portfolio strategy that buys firms with high AQ beta earns positive abnormal returns earns positive abnormal returns....
...Large-sample studies suggest mispricing of various accrual metrics and components of accruals: total accruals (Sloan, 1996); discretionary accruals (Xie, 2001); accruals and growth in long-term net operating assets as separate components of Sloan’s total accrual measure (Fairfield, Whisenant, and Yohn, 2003); and special items and accruals (Dechow and Ge, 2006). Dechow, Richardson, and Sloan (2008) show that investors correctly price various cash components of earnings except for the change in the cash balance....
Cites background from "Auditor independence, ‘low balling’..."
...Most studies define audit quality as some variation of “the market-assessed joint probability that a given auditor will both detect a breach in the client’s accounting system, and report the breach” (e.g., DeAngelo, 1981)....
...Auditor size, usually measured as Big N membership, is used to proxy for audit quality because large auditors are expected to have stronger incentives and greater competencies to provide high audit quality (DeAngelo, 1981)....
...The nature of the auditor–client relationship presents a natural threat to auditor independence because auditors have incentives to retain fee-paying clients (Mautz and Sharaf, 1961; DeAngelo, 1981)....
"Auditor independence, ‘low balling’..." refers background in this paper
...16See Macaulay (1963) for discussion of the use of explicit and implicit contracts in business relationships....