This paper is the first to study the effect of enhanced derivative and hedging footnote disclosures on information asymmetries in bank loan contracting. Utilizing the issuance of SFAS 161, we employ a difference-in-differences design to evaluate 3,732 bank loans for 1,126 firms in the United States between 2002 and 2017. We find that borrowers whose disclosures change more after SFAS 161 enjoy lower loan spreads and fewer general covenants and have more but less stringent financial covenants. Further analyses indicate that the increased qualitative and quantitative disclosures and use of tabular display after SFAS 161 matter most for lenders in loan contracting. Our empirical results also show that the changes in contract terms are driven by the abatement of information uncertainty regarding the firm value and the improvement in firm’s disclosure quality after SFAS 161, which helps explain how enhanced DH disclosures affect information asymmetries in bank loan contracting.
{"title":"FASB Disclosure and Bank Loan Contracting: Evidence from Derivative and Hedging Footnotes","authors":"Yi Chen, Qing Zhou, Jianlei Han","doi":"10.2139/ssrn.3879459","DOIUrl":"https://doi.org/10.2139/ssrn.3879459","url":null,"abstract":"This paper is the first to study the effect of enhanced derivative and hedging footnote disclosures on information asymmetries in bank loan contracting. Utilizing the issuance of SFAS 161, we employ a difference-in-differences design to evaluate 3,732 bank loans for 1,126 firms in the United States between 2002 and 2017. We find that borrowers whose disclosures change more after SFAS 161 enjoy lower loan spreads and fewer general covenants and have more but less stringent financial covenants. Further analyses indicate that the increased qualitative and quantitative disclosures and use of tabular display after SFAS 161 matter most for lenders in loan contracting. Our empirical results also show that the changes in contract terms are driven by the abatement of information uncertainty regarding the firm value and the improvement in firm’s disclosure quality after SFAS 161, which helps explain how enhanced DH disclosures affect information asymmetries in bank loan contracting.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"12 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-07-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85661076","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A. Eilifsen, K. Kjellevold, William F. Messier, Jr.
This study examines how company experts and their interactions with management and the auditor affect the fair value measurement (FVM) process. We conduct detailed interviews with 19 Norwegian company experts who possess expertise in financial instruments, investment property, oil & gas reserves, and shipping and 8 audit partners with extensive valuation experience to investigate theoretical predictions derived from agency theory and the monitoring role of company experts. Overall, the results support our predictions. Company experts: (1) have incentives to build and maintain their reputation, (2) face management pressure, and management uses several tactics (i.e., reappointment and multiple company experts) to influence their FVM, (3) are aware that providing multiple services (e.g., brokerage and trading) can affect their FVM but believe that there are adequate safeguards in place, and (4) differ by type of expert in allowing auditor access to their models and data. We also find variation by type of company experts' interaction with the audit team and their perceptions of the audit teams’ narrow focus on individual model assumptions. These findings inform researchers, regulators, and practitioners about the role company experts play in the FVM process.
{"title":"Insights from Company Experts in Valuing Complex Estimates","authors":"A. Eilifsen, K. Kjellevold, William F. Messier, Jr.","doi":"10.2139/ssrn.3756967","DOIUrl":"https://doi.org/10.2139/ssrn.3756967","url":null,"abstract":"This study examines how company experts and their interactions with management and the auditor affect the fair value measurement (FVM) process. We conduct detailed interviews with 19 Norwegian company experts who possess expertise in financial instruments, investment property, oil & gas reserves, and shipping and 8 audit partners with extensive valuation experience to investigate theoretical predictions derived from agency theory and the monitoring role of company experts. Overall, the results support our predictions. Company experts: (1) have incentives to build and maintain their reputation, (2) face management pressure, and management uses several tactics (i.e., reappointment and multiple company experts) to influence their FVM, (3) are aware that providing multiple services (e.g., brokerage and trading) can affect their FVM but believe that there are adequate safeguards in place, and (4) differ by type of expert in allowing auditor access to their models and data. We also find variation by type of company experts' interaction with the audit team and their perceptions of the audit teams’ narrow focus on individual model assumptions. These findings inform researchers, regulators, and practitioners about the role company experts play in the FVM process.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"102 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80583188","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine a comprehensive set of investigations by the SEC’s Division of Enforcement offices to provide evidence on the consequences of these office’s busyness on the formal investigation process. We find that higher office case backlog decreases the likelihood of an investigation into a restating firm. Our results show no evidence that higher backlogs affect the SEC’s ability to pursue cases involving revenue recognition issues and high insider trading, which is consistent with the agency’s stated priorities. But our findings indicate that busy SEC offices are less likely to pursue cases with the largest shareholder losses, which is inconsistent with SEC priorities. Backlog also impacts pursued investigations, leading to more prolonged investigations, a lower Accounting and Auditing Enforcement Releases likelihood, and smaller SEC penalties. Our evidence suggests that busyness undermines the SEC’s investigation process. JEL Classifications: G18; G38; K42; M41.
{"title":"Wearing Out the Watchdog: The Impact of SEC Case Backlog on the Formal Investigation Process","authors":"S. Bonsall, Eric R. Holzman, B. Miller","doi":"10.2139/ssrn.3912645","DOIUrl":"https://doi.org/10.2139/ssrn.3912645","url":null,"abstract":"\u0000 We examine a comprehensive set of investigations by the SEC’s Division of Enforcement offices to provide evidence on the consequences of these office’s busyness on the formal investigation process. We find that higher office case backlog decreases the likelihood of an investigation into a restating firm. Our results show no evidence that higher backlogs affect the SEC’s ability to pursue cases involving revenue recognition issues and high insider trading, which is consistent with the agency’s stated priorities. But our findings indicate that busy SEC offices are less likely to pursue cases with the largest shareholder losses, which is inconsistent with SEC priorities. Backlog also impacts pursued investigations, leading to more prolonged investigations, a lower Accounting and Auditing Enforcement Releases likelihood, and smaller SEC penalties. Our evidence suggests that busyness undermines the SEC’s investigation process.\u0000 JEL Classifications: G18; G38; K42; M41.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"405 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-06-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90659597","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Harvey, Liu, and Zhu (2016) argue that a large proportion of published asset-pricing factors are likely false. Researchers may try many variables and report only the significant ones, so-called p-hacking. Some recent work challenges the prevalence of p-hacking and argues that the amount of shrinkage necessary for reported results is trivial. We present a model where there are true anomalies and false anomalies. Our model does a good job of fitting the observed population. Our evidence is consistent with the idea that a large proportion of anomalies are false and reinforces the need to raise the thresholds for statistical significance.
Harvey, Liu, and Zhu(2016)认为，公布的资产定价因素中有很大一部分可能是假的。研究人员可能会尝试许多变量，并只报告重要的变量，即所谓的p-hacking。最近的一些研究对p-hacking的流行提出了挑战，并认为报告结果所需的收缩量微不足道。我们提出了一个存在真异常和假异常的模型。我们的模型很好地拟合了观察到的总体。我们的证据与大部分异常是假的观点是一致的，并且强化了提高统计显著性阈值的必要性。
{"title":"Uncovering the Iceberg from Its Tip: A Model of Publication Bias and p-Hacking","authors":"Campbell R. Harvey, Yan Liu","doi":"10.2139/ssrn.3865813","DOIUrl":"https://doi.org/10.2139/ssrn.3865813","url":null,"abstract":"Harvey, Liu, and Zhu (2016) argue that a large proportion of published asset-pricing factors are likely false. Researchers may try many variables and report only the significant ones, so-called p-hacking. Some recent work challenges the prevalence of p-hacking and argues that the amount of shrinkage necessary for reported results is trivial. We present a model where there are true anomalies and false anomalies. Our model does a good job of fitting the observed population. Our evidence is consistent with the idea that a large proportion of anomalies are false and reinforces the need to raise the thresholds for statistical significance.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"23 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-06-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76647611","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Italian Abstract: Lo studio si propone di semplificare le valutazioni a fini di garanzia societaria conformi ai PIV delle PMI, che sovente non hanno la capacità di produrre informazioni analitiche sulle proprie performance e non trovano riferimenti di mercato accessibili per la stima dei tassi e dei multipli di mercato. Le soluzioni proposte riguardano: la scelta come metodologia elettiva del Discounted Economic Profit, la considerazione di un intangibile di tipo tecnologico organizzativo o commerciale da assoggettare a verifica reddituale per le imprese in crisi, la determinazione del costo del capitale con il beta qualitativo e la comunicazione e discussione delle stime tramite i multipli. English Abstract: The study aims to simplify the legal valuations (compliant with the Italian Valuation Standards, PIV) of SMEs, which often do not have the ability to produce analytical information on their performance and for which it is hard to find accessible references for estimating discount rates and market multiples. The main ideas brought forward in the study are: the choice of the Discounted Economic Profit as the preferred methodology, the consideration of an intangible of organizational / technological or commercial nature to be tested for impairment for companies in crisis, the determination of the cost of capital with the qualitative beta and the communication and discussion of value estimates using market multiples as an aiding tool.
意大利摘要:这项研究的目的是简化符合中小企业国际会计准则的公司担保评估，这些中小企业往往没有能力提供有关其业绩的分析信息，也没有可获得的市场参考资料来估计市场利率和市场倍数。所提出的解决办法包括:选择作为Discounted经济赢利的选举方法,考虑到技术的一种无形的商业组织或受到核查收入资本成本的企业正处于危机之中,决心与贝塔系数质量和估计通过多重的交流和讨论。英语摘要:研究旨在简化中小企业的法律评估，因为中小企业没有能力对其绩效进行分析are The main创意brought forward in The study: The choice of The Discounted经济赢利as The preferred教学法,The consideration of an organizational intangible诉技术或商业nature to be tested for impairment for公司危机,The测定of The cost of capital with The beta定性and The communications and讨论of value支出icarus市场multiples as an aiding工具。
{"title":"Semplificare le valutazioni delle Piccole e Medie Imprese secondo i Principi Italiani di Valutazione (Simplify the Valuation of Small and Medium Enterprises according to the Italian Valuation Standards)","authors":"F. Bavagnoli","doi":"10.2139/ssrn.3874453","DOIUrl":"https://doi.org/10.2139/ssrn.3874453","url":null,"abstract":"Italian Abstract: Lo studio si propone di semplificare le valutazioni a fini di garanzia societaria conformi ai PIV delle PMI, che sovente non hanno la capacità di produrre informazioni analitiche sulle proprie performance e non trovano riferimenti di mercato accessibili per la stima dei tassi e dei multipli di mercato. Le soluzioni proposte riguardano: la scelta come metodologia elettiva del Discounted Economic Profit, la considerazione di un intangibile di tipo tecnologico organizzativo o commerciale da assoggettare a verifica reddituale per le imprese in crisi, la determinazione del costo del capitale con il beta qualitativo e la comunicazione e discussione delle stime tramite i multipli. English Abstract: The study aims to simplify the legal valuations (compliant with the Italian Valuation Standards, PIV) of SMEs, which often do not have the ability to produce analytical information on their performance and for which it is hard to find accessible references for estimating discount rates and market multiples. The main ideas brought forward in the study are: the choice of the Discounted Economic Profit as the preferred methodology, the consideration of an intangible of organizational / technological or commercial nature to be tested for impairment for companies in crisis, the determination of the cost of capital with the qualitative beta and the communication and discussion of value estimates using market multiples as an aiding tool.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"13 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-06-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87519745","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we examine the impact of increasing whistleblowing bounties on whistleblowers' strategy, the information regulators can extract from the whistleblowing program and the regulators' efficiency in detecting fraud. We find that, with a larger bounty, the regulator's information upon receiving a whistleblowing report deteriorates, while, perhaps surprisingly, the regulator's information upon no whistleblowing improves. Ex ante, when the concern about the fraud is sufficiently severe and the whistleblowing program is of high quality, increasing the bounty leads to a positive informational effect, and thus the optimal bounty is at a high level; otherwise, increasing the bounty has a negative informational effect and an intermediate level of bounty is optimal. Our analysis generates both policy and empirical implications for designing and studying the whistleblowing program.
{"title":"Whistleblowing Bounties and Informational Effects","authors":"Lin Nan, Chao Tang, Gaoqing Zhang","doi":"10.2139/ssrn.3873117","DOIUrl":"https://doi.org/10.2139/ssrn.3873117","url":null,"abstract":"In this paper, we examine the impact of increasing whistleblowing bounties on whistleblowers' strategy, the information regulators can extract from the whistleblowing program and the regulators' efficiency in detecting fraud. We find that, with a larger bounty, the regulator's information upon receiving a whistleblowing report deteriorates, while, perhaps surprisingly, the regulator's information upon no whistleblowing improves. Ex ante, when the concern about the fraud is sufficiently severe and the whistleblowing program is of high quality, increasing the bounty leads to a positive informational effect, and thus the optimal bounty is at a high level; otherwise, increasing the bounty has a negative informational effect and an intermediate level of bounty is optimal. Our analysis generates both policy and empirical implications for designing and studying the whistleblowing program.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"42 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-06-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77580465","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There is a debate on whether company visits, an important channel of analysts’ information acquisition, should be regulated similar to management disclosure under Regulation Fair Disclosure. Exploiting a Shenzhen Stock Exchange regulation, this study examines the impact of forcing the timely disclosure of analysts’ company visits on analysts’ information acquisition. We find that the regulation creates a chilling effect on analysts’ private information acquisition activities, negatively affecting analysts’ stock coverage, company visits and research report issuance. However, for the analysts who do issue earnings forecasts following the regulation, we find no evidence that the accuracy of such forecasts is lower, consistent with a rational expectation equilibrium.
{"title":"Company Visit Disclosure Regulation and Analysts’ Information Acquisition","authors":"B. Ke, Dongmin Kong, Shasha Liu","doi":"10.2139/ssrn.3870279","DOIUrl":"https://doi.org/10.2139/ssrn.3870279","url":null,"abstract":"There is a debate on whether company visits, an important channel of analysts’ information acquisition, should be regulated similar to management disclosure under Regulation Fair Disclosure. Exploiting a Shenzhen Stock Exchange regulation, this study examines the impact of forcing the timely disclosure of analysts’ company visits on analysts’ information acquisition. We find that the regulation creates a chilling effect on analysts’ private information acquisition activities, negatively affecting analysts’ stock coverage, company visits and research report issuance. However, for the analysts who do issue earnings forecasts following the regulation, we find no evidence that the accuracy of such forecasts is lower, consistent with a rational expectation equilibrium.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"233 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-06-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73510288","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using a shock to transparency in a parimutuel betting market, we show that capital flows increase in public information even in markets with largely risk-seeking participants. The evidence indicates that capital allocation decisions are partly a function of behavioral mechanisms such as the illusion of control. More broadly, our results suggest transparency can facilitate gambling behavior, a result with implications for the many settings in which decision-makers are not globally risk averse but rather exhibit local risk-seeking behavior. Our findings also inform policy debate on whether and how to use transparency to address speculative flows in financial markets.
{"title":"Public Information and Capital Flows: Evidence from a Betting Market","authors":"K. Balakrishnan, Darren Bernard","doi":"10.2139/ssrn.3874155","DOIUrl":"https://doi.org/10.2139/ssrn.3874155","url":null,"abstract":"Using a shock to transparency in a parimutuel betting market, we show that capital flows increase in public information even in markets with largely risk-seeking participants. The evidence indicates that capital allocation decisions are partly a function of behavioral mechanisms such as the illusion of control. More broadly, our results suggest transparency can facilitate gambling behavior, a result with implications for the many settings in which decision-makers are not globally risk averse but rather exhibit local risk-seeking behavior. Our findings also inform policy debate on whether and how to use transparency to address speculative flows in financial markets.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"13 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-06-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74440548","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We show that, contrary to popular belief, capital markets do not drive short-termism. By comparing public and private European firms in countries with different institutional infrastructures, we show that being listed in the stock market plays a positive role in a firm’s investment policies, which is inconsistent with the notion of short-termism. Additionally, the degree to which public markets encourage investment varies positively with countries’ institutional quality. We reconcile the differences between our findings and large sample U.S. results by showing that highly leveraged firms are over-represented in Sageworks’ U.S. private firm data.
{"title":"Capital Markets and Short-Termism: Evidence from the Investment Behavior of Public and Private Firms.","authors":"Olga Bogachek, M. Bonacchi, Paul Zarowin","doi":"10.2139/ssrn.3864212","DOIUrl":"https://doi.org/10.2139/ssrn.3864212","url":null,"abstract":"We show that, contrary to popular belief, capital markets do not drive short-termism. By comparing public and private European firms in countries with different institutional infrastructures, we show that being listed in the stock market plays a positive role in a firm’s investment policies, which is inconsistent with the notion of short-termism. Additionally, the degree to which public markets encourage investment varies positively with countries’ institutional quality. We reconcile the differences between our findings and large sample U.S. results by showing that highly leveraged firms are over-represented in Sageworks’ U.S. private firm data.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"84 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-06-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80887906","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Companies are under increasing pressure to manage their reputation on environmental, social, and governance (ESG) issues. Auditors are a potential source of ESG risk management expertise and assurance due to a deep understanding of their client’s ESG-related reputation risk (“ESG risk”) and their assurance reporting expertise. However, provision of nonaudit services (NAS) by the external auditor is controversial and public accountants are still defining their role in ESG risk control and reporting. We explore whether auditors effectively help companies manage heightened ESG risk in times of reputation crisis, using abnormal negative ESG-related media coverage as a measure of “tainted reputation”. Findings show a positive association between tainted reputation and NAS, and a positive association between the interaction of tainted reputation and NAS with future firm value. The positive interaction persists when we consider a proxy for other ESG risk management activities in our analyses, and for other measures of ESG risk management effectiveness (future stock returns and future tainted reputation). Subsample analyses indicate results are driven by companies audited by ESG industry specialist auditors, and that the association between NAS and tainted reputation is driven by companies owned by institutional shareholders. Using restatements as a proxy, we find no evidence to suggest that the interaction of NAS and tainted reputation is associated with impaired audit quality. Findings demonstrate an empirical linkage between tainted reputation and NAS, support the importance of managing ESG risk, and suggest auditors effectively help their clients respond to heightened ESG risk.
{"title":"The Role of the External Auditor in Managing Environmental, Social, and Governance Reputation Risk","authors":"T. Lambert, Bright Asante-Appiah","doi":"10.2139/ssrn.3864175","DOIUrl":"https://doi.org/10.2139/ssrn.3864175","url":null,"abstract":"Companies are under increasing pressure to manage their reputation on environmental, social, and governance (ESG) issues. Auditors are a potential source of ESG risk management expertise and assurance due to a deep understanding of their client’s ESG-related reputation risk (“ESG risk”) and their assurance reporting expertise. However, provision of nonaudit services (NAS) by the external auditor is controversial and public accountants are still defining their role in ESG risk control and reporting. We explore whether auditors effectively help companies manage heightened ESG risk in times of reputation crisis, using abnormal negative ESG-related media coverage as a measure of “tainted reputation”. Findings show a positive association between tainted reputation and NAS, and a positive association between the interaction of tainted reputation and NAS with future firm value. The positive interaction persists when we consider a proxy for other ESG risk management activities in our analyses, and for other measures of ESG risk management effectiveness (future stock returns and future tainted reputation). Subsample analyses indicate results are driven by companies audited by ESG industry specialist auditors, and that the association between NAS and tainted reputation is driven by companies owned by institutional shareholders. Using restatements as a proxy, we find no evidence to suggest that the interaction of NAS and tainted reputation is associated with impaired audit quality. Findings demonstrate an empirical linkage between tainted reputation and NAS, support the importance of managing ESG risk, and suggest auditors effectively help their clients respond to heightened ESG risk.","PeriodicalId":12319,"journal":{"name":"Financial Accounting eJournal","volume":"20 22","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-06-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91405395","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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