This paper analyzes the impact of agents' risk aversion and other agency parameters on optimal bias in the performance measures used for incentive contracts. Prior research has shown that the limited liability of the agent results in a demand for accounting systems that are stringent compared to...

Enron's collapse is generally viewed as a morality tale - the natural result of managerial greed, a clueless board, and feckless gatekeepers. But none of these aspects of the story clearly distinguishes Enron from other major firms during the bubble era of the late 90s. This material identifies...

This study examines the relationship between audit personnel salaries and office-level audit quality. We measure audit personnel salaries at the Associate, Senior and Manager ranks for Big 4 audit offices from 2004 to 2013 using unique data obtained from the U.S. Department of Labor. We find...

This study examines the relation between audit personnel salaries and office-level audit quality. We measure audit personnel salaries at the associate, senior and manager ranks for Big 4 audit offices from 2004 to 2013 using unique individual auditor level data obtained from the U.S. Department...

We examine whether financial reporting quality improves after firms voluntarily adopt a compensation clawback provision. Clawback provisions allow companies to recoup excess incentive pay in the event of an accounting restatement, and are intended to ex ante deter managers from publishing...

Two critical aspects of the model of auditor expertise development in Tan and Libby [1997] are that audit firms do not value tacit knowledge in inexperienced auditors but do value it in experienced auditors. We update the former and extend the latter. Our paper predicts and finds that audit...

Clawback policies are compensation recovery policies that provide companies with the ability to recoup incentive-based compensation in the event of a financial fraud. We investigate whether the mandatory clawback provision in the Dodd-Frank Act is necessary or whether existing provisions under...

Audit firms need to provide high quality audits but they also need to please their clients. We argue that these conflicting incentives become manifest when comparing the incentive effects of equity ownership on engagement quality (EQ) reviewers and audit engagement partners. We predict that EQ...

Two critical aspects of Tan and Libby [1997]’s model of auditor expertise development are that audit firms do not value tacit knowledge in inexperienced auditors but do value it in experienced auditors. We update the former and extend the latter. Our paper predicts and finds that audit firms...

In the model there are two types of financial auditors with identical technology, one of which is endowed with a prior reputation for honesty. We characterize conditions under which there exists a “two-tier equilibrium” in which “reputable” auditors refuse bribes offered by clients for...