I examine information asymmetry in dual-class firms in general and when they need (do not need) additional external capital. In general the results show that dual-class firms have higher information asymmetry than single-class firms. When dual-class firms need additional external financing, the gap in information asymmetry between dual-class firms and single class firms is narrower. I find that as the need of additional external capital increases, the difference in information asymmetry between dual-class and single-class firms decreases (consistent with increased disclosures). It decreases, up to a point that there is no difference in information asymmetry with single-class firms that also needs additional external capital. When using adverse selection component of bid-ask spread, the paper finds that as the need of external financing gets high, dual-class firms show lower information asymmetry 1 year before they need additional external capital.

Purpose Setting audit fees is a persistent source of stress for auditors who must, on one hand, comply with the increasing government regulations that generally cause costs to rise; and on the other hand, respond to client pressures to keep audit fees down. In the post-scandal environment of Enron, WorldCom, and the demise of Arthur Andersen, policy makers have introduced additional costs for auditors by increasing regulations and creating a new industry watchdog – the Public Company Accounting Oversight Board (PCAOB). In this environment of constant pricing-cost tension for the auditor, the purpose of this paper is to examine audit fee trends over an extended period, 2000-2014. Design/methodology/approach The authors calculate the unexpected audit fees using the audit fee model. The authors examine audit fee trends while controlling for changes due to inflation, auditor wages, and other audit fee determinants. Findings The key findings indicate that audit fees increased in response to the promulgation of new audit regulations requiring additional audit work, the Sarbanes-Oxley (SOX) Act of 2002 and Auditing Standard No. 2 in 2004. Additionally, the authors find that audit fees decreased after new regulations alleviating audit work, namely the passage of Auditing Standard No. 5 in 2007, and remained unchanged when new regulations had a minimal impact on audit work, namely the Dodd-Frank Act of 2010. Practical implications The findings of this research are relevant to audit clients, auditors, and regulators as they weigh the cost and benefits of significant new audit regulations and their impacts on audit fees. Originality/value Using the more recent US data, the results in this paper show how events changed audit fee trends in recent years. The findings indicate that audit fees increased after the passage of new audit regulations such as the SOX Act of 2002, Auditing Standards No. 2 in 2004, and decreased after the passage of Auditing Standards No. 5 in 2007.

Purpose – This paper aims to examine whether Andersen’s audit quality in the five years preceding its collapse lagged that of other Big-Five auditors. Design/methodology/approach – This paper compares Andersen’s audit quality and the other Big-Five auditors using five methodologies, namely, earnings response coefficients, magnitudes of abnormal accruals, propensities to issue going-concern opinions, usefulness of going-concern opinions in predicting bankruptcy and the frequency of Accounting and Auditing Enforcement Releases. The comparisons are based on both pooled samples of all observations and propensity-score-based matched-pairs. Findings – The preponderance of evidence shows that Andersen’s audit quality did not differ materially in audit quality from other Big-Five auditors prior to its failure. However, it was found that Andersen’s independence was compromised in the year leading to its collapse (2000), as indicated by the lower likelihood to issue going-concern opinions. Originality/value – This paper complements and improves on Cahan et al. (2011) by using more measures of audit quality, as no one measure is perfect, showing that their results using discretionary accruals are sensitive to the model used and showing that there is a more powerful direct measure of audit quality, namely, going-concern opinions.

Purpose – The purpose of this paper is to replicate Richardson et al.’s (2005) study on how accrual components’ reliability affects earnings persistence and whether investors anticipate the lower earnings persistence through stock return. In this study, the authors use more recent data to examine whether the previous results still hold. Design/methodology/approach – The authors run the analysis using Richardson et al.’s (2005) design of ordinary least squares and report the results using Fama and Macbeth’s (1973) procedures. Findings – The results corroborate Richardson et al.’s (2005) conclusions that lower reliability of total accrual (accrual components) leads to lower earnings persistence. Originality/value – This study replicates Richardson et al. (2005) using more recent US data. The results in this paper confirm the general conclusion in the original study: less reliable accruals lead to lower earnings persistence.

Purpose – This paper revisits the Reynolds and Francis’ (2001) study via the use of a more current dataset, incorporation of improvements into the accrual model and the use of actual fee data vs estimates. Using the improved analyses, the purpose of this paper is to examine whether more conservative auditors’ reports on larger clients are still evident. Design/methodology/approach – The paper follows Reynolds and Francis (2001) in using a regression model with White-adjusted t-statistics for the discretionary accrual model and a logistic model for going concern analysis. The most current discretionary accrual model is used to improve the original model, use actual fee data (not available previously), and add analyses using the two components of total fees (i.e. audit and non-audit fees). Findings – As opposed to Reynolds and Francis (2001), the results show that the Big Five auditors are less conservative with higher-paying clients as they allow their clients to have more discretionary accruals. While Reynolds and Francis (2001) found that auditors are more likely to report going concern opinions for higher-paying clients, the results in this paper does not show any difference in the propensity of auditors to issue going concern opinions. Originality/value – This study replicates Reynolds and Francis (2001) using more recent US data, applying the most recent discretionary accrual model, using the actual fee data, and adding analyses using total fees decomposition.