Does Media Exposure Affect Financial Reporting Quality Through Auditors?

Cahan, Steven F.; Chen, Chen; Wang, Rencheng

doi:10.1177/0148558x20936083

Cited by 15 publications

(8 citation statements)

References 72 publications

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“…For example, as primary users of audit reports, investors' supervision role is potentially very important (Kane & Velury, 2004). The literature also documents an association between press coverage and auditor behavior (Burke et al, 2019;Cahan et al, 2021;Dhaliwal et al, 2017;Frost, 1991;Gong et al, 2018;Joe, 2003;Mutchler et al, 1997;Penn, 2012). Other studies examine the relation between analyst following (Fang et al, 2014) and short interest (Cassell & Drake, 2011;Hope et al, 2017) and auditor behavior.…”

Section: Related Literaturementioning

confidence: 99%

“…First, this study furthers the literature on the determinants of auditor behavior by providing evidence on the governing effect that market forces have on auditing. Prior literature provides some evidence about the supervision from market forces by examining the association between the existence or strength of a specific type of market force and audit behavior (e.g., Cahan et al, 2021;Cassell et al, 2011;Fang et al, 2014;Gong et al, 2018;Hope et al, 2017;Kane & Velury, 2004). However, because the existence or strength of these market forces is typically endogenous in some unobservable firm or economy characteristics that may be correlated with auditor behavior, it is difficult for these studies to support causal inferences.…”

Section: Introductionmentioning

confidence: 99%

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Capital market liberalization and auditors' accounting adjustments: Evidence from a quasi‐experiment

Deng

Hope

Wang

et al. 2021

Business Fin & Account

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Using a shock to the Chinese capital market and unique and detailed audit-adjustment data, this paper investigates the effect of a capital market liberalization program on auditors' adjustments to their clients' financial reports. Employing difference-in-differences tests with propensity score matching and firm fixed effects (FE), we find that the capital market liberalization induced by the implementation of the Shanghai-Hong Kong Stock Connect affects auditors' professional judgment and leads to audit-adjustment changes stimulated by greater reputational and litigation risks for auditors. Specifically, while the liberalization significantly decreases the frequency and magnitude of upward audit adjustments, the probability of downward adjustments remains the same in most cases. Further evidence shows that the effect is more pronounced for companies with high trading volume from Hong Kong investors, audited by the largest audit firms and with low financial transparency.

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Section: Related Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Capital market liberalization and auditors' accounting adjustments: Evidence from a quasi‐experiment

Deng

Hope

Wang

et al. 2021

Business Fin & Account

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“…This outcome supports the notion that media coverage reduces the information asymmetry amongst investors. Cahan et al (2020) document that media coverage improves financial reporting quality. Taken together, these findings are consistent with the "information view" of media coverage.…”

Section: Media Coverage and Financial Report Restatementsmentioning

confidence: 99%

Media coverage and financial restatements: evidence from China

Alkebsee

Habib

2021

ARA

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PurposeDrawing on the premise that the media play a vital corporate governance role, this paper aims to investigate the association between media coverage and financial report restatements.Design/methodology/approachBased on a sample of Chinese listed companies over the period 2011–2015, the authors use ordinary least squares regression as well as a number of additional tests. To mitigate the endogeneity issue, the authors use a two-stage Heckman test and a propensity score matching model.FindingsThe authors document a negative and significant association between media coverage and restatements, suggesting that firms with high media coverage engage less in financial restatements. The authors further explore the moderating effects of internal control quality and state ownership on the association between media coverage and restatements. Regression results reveal that the governance role of the media is more pronounced for state-owned enterprises than for private firms. However, no significant difference in the disciplining effect of media coverage is found for firms with high, versus low, internal control quality.Originality/valueThe role of the media in corporate governance and financial reporting quality has been well documented. In emerging economies, such a role has been overlooked. As a result, the purpose of this study is to fill that void. Furthermore, prior research ignores the impacts of state ownership and the internal control environment on the media's governance role.

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“…Burke et al (2019) examine auditors' response to negative news coverage of clients' environmental, social and governance (ESG) practices and find that auditors are more likely to resign from clients that receive negative news coverage and respond to negative news about their clients' ESG practices by increasing audit planning and fees, suggesting that auditors incorporate news coverage into clients' risk assessments. Relatedly, Cahan et al (2020) find that auditors incorporate a client's general media visibility into their client risk assessments and charge higher fees that lead to better financial reporting quality, on average. Using data on Chinese firms, Gong, Gul and Shan (2018) find evidence that auditors charge higher fees for clients with more news coverage, regardless of news tone, suggesting that more visible clients pay an audit premium.…”

Section: National News Media In Accounting Researchmentioning

confidence: 99%

Do Audit Firms Care about Media Coverage? An Investigation of Audit Firm Response to News Coverage

2020

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We examine how auditors respond to news coverage of their firm and evaluate the extent to which national news outlets function as a watchdog over audit firms. We find that when media coverage includes issues specific to the audit opinion (i.e., restatements, adverse internal control opinions, fraud), audit firms respond by increasing audit attention (increased fees, reporting delay, and late filings). We find that this is amplified among clients with issues similar to those discussed in the media coverage. In contrast, we find that when news coverage does not relate to audit reporting decisions, firms decrease fees and issue audit opinions sooner. Additional analyses reveal that audit firms respond to high levels of news coverage at peer firms, suggesting that firms try to preemptively manage their reputation even when they are not under direct media scrutiny, and negative news has significant costs for firms' client growth and retention. Collectively, our evidence suggests that the news media functions as an effective informal oversight mechanism of auditing firms by driving increased auditor attention and improved audit quality.

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Does Media Exposure Affect Financial Reporting Quality Through Auditors?

Cited by 15 publications

References 72 publications

Capital market liberalization and auditors' accounting adjustments: Evidence from a quasi‐experiment

Capital market liberalization and auditors' accounting adjustments: Evidence from a quasi‐experiment

Media coverage and financial restatements: evidence from China

Do Audit Firms Care about Media Coverage? An Investigation of Audit Firm Response to News Coverage

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