We investigate the role of audit verification in the resolution process following debt covenant violations. Using two sets of proxies for demand—audit fees and the independence and diligence of audit committees—we find evidence that covenant violations result in a demand for differentially...

We investigate whether auditors exercise closer monitoring and thus charge higher fees in response to debt covenant violations. Using a hand-collected sample focusing on initial covenant violations, we document that audit fees experience an average increase of about 20 percent in the year...

We investigate whether covenant violations function as information mechanisms that lead to the external auditor either exercising closer monitoring or opting to exit. Such responses are expected based on interactive stakeholder monitoring and reaction as described in Triantis and Daniels (1995)....