As a result of the global financial crisis (GFC), several audit clients were able to negotiate lower audit fees for the years 2008 and 2009. However, the PCAOB has expressed concern that lower audit fees might lead to lower audit effort and lower audit quality and financial reporting quality....

Using data from the Chinese market where related party transactions (RPTs) are particularly prevalent, we examine how the independent auditor responds to the potentially heightened risk of RPTs and the efficacy of the auditor's response. First, we find that the auditor is more likely to issue a...

The Sarbanes-Oxley Act of 2002 (SOX) proscribes so-called “affiliated hires” of financial executives. More specifically, SOX requires that firms wait at least one year before hiring an individual recently employed as a member of the firm’s external audit team. The intent of the regulation...

We examine whether takeover protection exacerbates or mitigates real earnings management (i.e., using abnormal real activities to meet near-term earnings targets). Consistent with Stein’s (1988) prediction that takeover pressure induces managerial myopia, we find that less-protected firms are...

Zhongtianqin, the largest Chinese auditor in 2000, collapsed in 2001 owing to its audit failure. This study examines how the market reacted to the audit scandal in the Chinese institutional setting. Chinese investors are entitled to recover their investment losses from auditors owing to audit...

In measuring tunneling with inter-corporate loans disclosed by Chinese listed companies, we analyze the underlying channels through which aggressive tax planning facilitates the diversion of corporate resources by firm insiders. Using path analysis, we document that the path from tax...

Prior research documents wide variation in the precision of accounting standards (rules-based standards (RBS) versus principles-based standards (PBS)). We examine whether financial reporting quality evident in restatements is associated with accounting standard precision and whether the role...

Recent research challenges the notion that the Big 4 auditors provide a higher quality audit relative to non-Big 4 and suggests that the Big N effect could be due to self-selection. We contribute to this debate by controlling for pre-audit earnings quality, an important omitted variable in prior...

The Securities and Exchange Commission (SEC) recently made timely reviews of quarterly financial statements mandatory for all registrants. The objective is to improve corporate quarterly reporting. However, formal review reports are not required to be included in 10-Q filings, and may not even...

We examine which of two opposing financial reporting incentives that group-affiliated firms experience shapes their accounting transparency evident in auditor choice. In one direction, complex group structure and intra-group transactions enable controlling shareholders to pursue diversionary...