Topic
Litigation risk analysis
About: Litigation risk analysis is a research topic. Over the lifetime, 842 publications have been published within this topic receiving 27759 citations.
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1,346 citations
TL;DR: This article found no evidence that economic dependence causes Big Five auditors to report more favorably for larger clients in their offices, and they do find that Big 5 auditors report more conservatively for large clients, suggesting that reputation protection dominates auditor behavior.
1,187 citations
TL;DR: The authors investigated whether managers who issue annual earnings forecasts manage reported earnings toward their forecasts, fearing legal actions by investors and loss of reputation for accuracy, and found that managers make income-increasing (decreasing) accounting decisions when earnings would otherwise be below (above) management forecasts, and that the earnings management activity is increasing in expected forecast error costs.
Abstract: This study investigates whether managers who issue annual earnings forecasts manage reported earnings toward their forecasts, fearing legal actions by investors and loss of reputation for accuracy. I hypothesize that managers make income-increasing (decreasing) accounting decisions when earnings would otherwise be below (above) management forecasts, and that the earnings management activity is increasing in expected forecast error costs.1 These costs are likely higher for overestimates than for underestimates and are increasing in the magnitude of the forecast
936 citations
TL;DR: In this paper, a sample of auditor change firms was used to find that discretionary accruals are income decreasing during the last year with the predecessor auditor and generally insignificant during the first year with a successor.
884 citations
TL;DR: In this paper, the authors examined whether the perceived higher quality of a Big 4 audit is related to auditor litigation exposure or to reputation concerns and found that it is litigation exposure rather than brand name reputation protection that drives perceived audit quality.
Abstract: Prior research suggests that Big 4 auditors provide higher quality audits in the U.S. in order to protect the firm's brand name reputation and to avoid costly litigation. In this study, we examine whether the perceived higher quality of a Big 4 audit is related to auditor litigation exposure or to reputation concerns. Specifically, we utilize an estimable proxy for financial reporting credibility—the ex ante cost of equity capital—to examine whether Big 4 auditors are perceived as providing higher quality audits (relative to non‐Big 4 auditors) in the U.S., and in the less litigious (but economically similar) environments in other Anglo‐American countries during the 1990–99 period. We find that a Big 4 audit is associated with a lower ex ante cost of equity capital for auditees in the U.S. but not in Australia, Canada, or the U.K. Our findings suggest that it is litigation exposure rather than brand name reputation protection that drives perceived audit quality.
770 citations