Comment letters and internal control opinion shopping

Abstract

Taking Chinese A-share listed firms from 2015 to 2017 as our samples, this paper investigates the supervision effect of comment letters on internal control opinion shopping at audit firm level, branch level and signing partner level respectively. The empirical results show that the pressure from comment letters can significantly decrease the probability of internal control opinion shopping at both audit firm level and signing partner level. This supervision effect is more pronounced when there are internal-control-related questions in comment letters or the firm's annual auditor is required to give opinions on some questions in comment letters. As for the branch level of audit firms, it is found that the supervision effect of comment letters on internal control opinion shopping is more pronounced in the firms which switch from headquarters to branches. We also find comment letters have spillover effects on firms in the same industry, in the same province or with the same auditors.

Audit Committee and Regulatory Scrutiny

“…The initial research sample comprises 2,853 firm-years observations. This paper excludes financial/utility firms (1,242 observations) because of the dissimilarity in various metrics (e.g., Bills et al, 2020;Yao & Xue, 2019). The paper further eliminates companyyears (990 observations) with low trade levels (less than 20 trades) and company-years lacking the essential data to measure research variables.…”

The Impact of Corporate Social Responsibility on Regulatory Comment Letters: Evidence from Iran

“…Research on the determinates of receiving a CL (e.g., Robinson et al, 2011;Cassell et al, 2013;Johnston & Petacchi, 2017;Ballestero & Schmidt, 2019;Hesarzadeh and Rajabalizadeh, 2020) provides evid-ence that CL receipt is more likely for companies that are large, older, more volatile, unprofitable, complex, engage smaller auditors, have recent IPO, or have weak corporate governance, managerial ability, and financial reporting. Furthermore, research on the consequences of receiving a CL (e.g., Gietzmann & Pettinicchio, 2014;Bozanic et al, 2017;Johnston & Petacchi, 2017;Brown et al, 2018;Duro et al, 2018;Cassell et al, 2019;Yao & Xue, 2019;Cunningham et al, 2020) suggests that, in general, a CL improves information environment, in the form of higher earnings response coefficients, quality of disclosures, and forecast accuracy; and lower internal control opinion shopping, earnings management, abnormal trading volume, return volatility, bidask spread and future stock price crash risk.…”

“…As shown in the table, the initial research sample comprises 2,219 company-years observations (i.e., 317 companies over seven years). This paper excludes financial/utility companies because of the dissimilarity in various metrics and following literature (e.g., Shahab & Ye, 2018;Bills et al, 2019;Nair et al, 2019;Tan et al, 2020;Xu & Yang, 2019;Yao & Xue, 2019;Cunningham et al, 2020). The paper further eliminates company-years with low trade levels (less than 20 trades) and company-years without the necessary data to compute research variables.…”

Comitê De Auditoria E Escrutínio Regulatório

“…A amostra inicial da pesquisa compreende 2.853 observações de empresas por ano. Este artigo exclui empresas financeiras e de serviços públicos (1.242 observações) devido à dissimilaridade em várias métricas (Bills et al, 2020;Yao & Xue, 2019). O artigo elimina ainda 990 observações onde houve baixos níveis de comércio (menos de 20 negócios) em empresas por ano, bem como os casos onde faltavam dados essenciais para medir as variáveis de pesquisa em empresas por ano.…”