Although theory suggests that companies would rationally select into audit even if it were not a legal requirement, many countries impose mandatory audits. This is arguably due to an audit having elements of a public good, which may result in not enough audits being purchased without regulatory...

After a long period of universal mandatory audit, the UK reduced the regulatory burden of private firms by introducing size-based audit exemption in 1994; the size thresholds have subsequently been progressively increased. Both accounting bodies and credit rating agencies have expressed reservations...

We argue that auditors are more conservative when they face high estimation risk. To test this, we examine how auditors respond to the estimation risk associated with predicting the future bankruptcy outcomes of their audit clients. Consistent with auditors being more conservative when they face...

We hypothesize that the choice to obtain a financial statement audit provides external financiers with incremental information about the firm, which helps reduce information asymmetry and financing frictions. Using a natural experiment, we show that when external financiers observe a firm's...

Using a sample of firms experiencing exogenous CEO departures, we investigate whether firms with overconfident CEOs avoid more tax. We find robust evidence of a positive relation between proxies for corporate tax avoidance and CEO overconfidence. Because our empirical tests use a panel of...

This paper investigates why the market fails to incorporate the adverse information conveyed by the going-concern (GC) opinion in a timely manner. Our main conjecture is that the lottery-like features of GC stocks attract a predominantly retail clientele who use those stocks to gamble in the...

We examine whether earnings announcement textual tone, aggregated across individual publicly traded firms, helps to predict future GDP growth. Prior literature shows changes in aggregate accounting earnings are useful in predicting future economic growth, but only when aggregate earnings changes...

We provide evidence that increased reporting frequency enhances the extent to which stock prices guide managers' investment decisions. Using a generalized difference-in-differences research design, we find the sensitivity of investment to stock price increased for Mandatory Adopters following an...

Konchitchki and Patatoukas (2014) (hereafter KP 2014) show that aggregate accounting earnings growth predicts future nominal Gross Domestic Product (GDP) growth and that professional macro forecasters do not fully incorporate the information contained in aggregate accounting earnings. Based on...