Auditor compensation, disclosure quality, and market liquidity: Evidence from the stock market

Ascioglu, Asli; Hegde, Shantaram P.; McDermott, John B.

doi:10.1016/j.jaccpubpol.2005.05.002

Cited by 56 publications

(22 citation statements)

References 39 publications

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“…However, the alignment-of-interests effect can reduce opportunistic and entrenched behavior among managers when their shareholding increases. As a result, accounting numbers are less manipulated and audit procedures and audit fees can both fall (Simunic & Stein, 1996;Peel & Clatworthy, 2001;Bedard & Johnstone, 2004;Nikkinen & Sahlström, 2004;Ascioglu, Hegde & McDermott, 2005;Mitra et al, 2007;Gotti et al, 2012). Nonetheless, the association between managerial ownership and audit fees is non-linear due to the co-existence of the divergence-of-interests and entrenchment effects.…”

Section: Managerial Ownership and Audit Feesmentioning

confidence: 99%

The Effects of Managerial Shareholding on Audit Fees: Evidence from Hong Kong

Lin

Liu

2012

Int J Auditing

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This study investigates how managerial shareholding affects audit pricing for listed companies in Hong Kong. Based on agency theory, we examine the relationship between managerial shareholding and audit fees, from the perspectives of the alignment effect and the entrenchment effect. We posit a non‐linear relationship, which is tested by grouping sample firms into three levels of managerial shareholding: low, intermediate, and high regions of management ownership. The empirical results reveal that the association of managerial ownership with audit fees is non‐linear: managerial shareholding is significantly and negatively associated with audit fees in the low and high regions of managerial ownership, whereas the association is significantly positive in the intermediate region. These correlations are further confirmed by the results of curvilinear regression analysis.

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Section: Managerial Ownership and Audit Feesmentioning

confidence: 99%

The Effects of Managerial Shareholding on Audit Fees: Evidence from Hong Kong

Lin

Liu

2012

Int J Auditing

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“…The continued operation of each company requires an investment of I > 0 from its shareholders at the beginning of the 6 See Ascioglu et al (2005) for a literature review of the mixed empirical evidence on whether non-audit revenues impair auditor independence. 7 Our unreported analysis also examines the alternative case, in which the SEC assumption does not hold, i.e., when the nonaudit revenues do not affect auditor independence.…”

Section: Shareholders' Investment Opportunitiesmentioning

confidence: 99%

“…The assumption underlying the SEC's, 2003 regulation on auditor compensation is that large non-audit services impair auditor independence. Most of the studies on non-audit services focus on the validity of this assumption (e.g., Ascioglu et al, 2005;Asare et al, 2005;Ghosh et al, 2009). 6 There has been no prior study that offers a rigorous analysis of the impact of the SEC regulation on auditor behavior.…”

Section: Introductionmentioning

confidence: 99%

Consulting revenue sharing, auditor effort and independence, and the regulation of auditor compensation

Liu

Chan

2012

Journal of Accounting and Public Policy

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a b s t r a c tThe joint provision of audit and non-audit services by audit firms to their audit clients has posed a threat to auditor independence. To mitigate the independence problem, the US Securities and Exchange Commission (SEC) issued a regulation (SEC, 2003) that prohibits audit partners from receiving compensation for the sale of non-audit services to their audit clients. This study examines the effects of this regulatory change on the effort and reporting decisions of audit partners. We show that partners in an audit firm strategically change the firm's liability-sharing rule. As a consequence, the regulation restores truthful reporting but has an undesirable negative effect on audit effort. The effect of the regulation on the welfare of the economy (defined as the total payoff to both audit firms and their clients) hinges on the tradeoff between the benefit of the regulation, which is derived from the inducement of truthful reporting, and the cost of the regulation, which results from less diligent audit work. We show that the regulation is more likely to increase the welfare in a strong legal regime (where the legal liability cost of auditor litigation is high) than in a weak legal regime.

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“…With regard to the consequences of auditing on information asymmetry, previous literature has examined the association of information asymmetry in the market with audit compensation (Ascioglu et al, 2005;Danielsen et al, 2007) and audit quality, proxied by Big n and industry specialists auditors (Clinch et al, 2012). The main findings obtained are that higher audit compensation is associated with greater adverse selection and lower liquidity in the market, while higher quality auditors enhance the credibility of the information reported by companies and thus reduce the level of information asymmetry among investors.…”

mentioning

confidence: 99%

Audit opinions and information asymmetry in the stock market

Abad

Sánchez‐Ballesta

Yagüe

2015

Accounting & Finance

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This study analyses the relationship between the content of the audit reports and information asymmetry levels in the stock market for a sample of Spanish firms. By implementing an association study, we document (1) that firms with audit qualifications show higher information asymmetry levels than those with unqualified opinions; (2) firms with non‐quantified qualifications show higher informational asymmetry than firms with quantified qualifications; and (3) we find a stronger effect on the level of informational asymmetry in the case of going concern qualifications. Our findings suggest that audit qualifications reporting more uncertainty on firm accounting statements result in higher adverse selection risk.

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Auditor compensation, disclosure quality, and market liquidity: Evidence from the stock market

Cited by 56 publications

References 39 publications

The Effects of Managerial Shareholding on Audit Fees: Evidence from Hong Kong

The Effects of Managerial Shareholding on Audit Fees: Evidence from Hong Kong

Consulting revenue sharing, auditor effort and independence, and the regulation of auditor compensation

Audit opinions and information asymmetry in the stock market

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