British Accounting Review最新文献

We examine the impact of poor corporate social responsibility engagement signalled through negative environmental and social (E&S) incidents on equity financing via seasoned equity offerings (SEOs) across 25 countries. The results show that negative E&S incidents significantly aggravate SEO underpricing, thereby increasing the cost of raising equity capital. Managers appear to take the adverse effects into consideration as reflected in the reduced likelihood of issuing equity following the experience of negative E&S incidents. Further analysis shows that such adverse pricing effects are stronger for firms that are subject to significant social and regulatory penalties for their E&S misconducts, suggesting that negative E&S incidents increase corporate reputational losses and elevate regulatory risk. Finally, there are rich cross-country variations in the SEO pricing effects of E&S risks with legal investor protection and national culture playing an important role in influencing the pricing of E&S risk.

To better understand how the practice of auditing can be more effectively enrolled in the fight against fraud and corruption, this study (1) examines how these problems are viewed and defined by the public and (2) contrasts this view and definition with that of professional auditors. The examination is informed by the dispositive theory of Foucault and an inductive analysis of a large (90,000+) multi-year sample of news stories related to fraud and corruption in the Italian health sector. While auditors define these problems in relatively narrow terms and consign them to ‘a form of risk, a threat to reputation and revenue, and a cost of doing business,’ the study finds that the public has a broader definition and a greater concern with problematic acts and actors ‘in and of themselves’. These findings have important implications for the audit expectations gap and how it might be addressed. The study also provides a useful analytical method for locating and better understanding fraud and corruption in other large, institutional settings.

Considering the inherent stickiness of abnormal audit fees, our study contributes to the literature by decomposing abnormal audit fees into a jump component and long-run sticky component. We investigate whether and how changes in credit ratings asymmetrically affect the jump component of abnormal audit fees. We document a positive association between rating downgrades and the jump component. We find that heightened bankruptcy risk and misstatement risk are the mechanisms that drive this relationship. Further analysis shows that firms experiencing rating downgrades are more likely to receive a going concern opinion and experience longer audit report lags. Taken together, our findings provide direct evidence that credit ratings are significantly associated with abnormal audit fees, particularly with the jump component. Given the serial correlation of abnormal audit fees, our study sheds light on the importance of disaggregation of the abnormal audit fee residuals into the jump and long-run sticky components.

Using data from 123 reverse mergers (RMs) in China, this study investigates the determinants and economic consequences of auditor choice in RMs. We find that the choice of a new auditor instead of the incumbent auditor is not related to auditor competence but to the relative bargaining power of RM firms and publicly listed firms (shell firms), and that the probability of choosing new auditors is higher when RM firms have more bargaining power relative to shell firms. We also find that hiring new auditors in the RM is associated with a higher valuation of injected assets and higher pre-listing income-increasing discretionary accruals in RM firms. Furthermore, post-merger firms exhibit drops in accounting performance and firm value and are more likely to restate their financial reports within 3 years of listing when new auditors are appointed in RMs. Finally, the cross-sectional test shows that this effect mainly exists in the context of RMs where the newly appointed auditor is a non-Big 10 auditor and a non-specialist auditor. Overall, our results emphasize the role of RM firms and shell firms in auditor choice for RMs and highlight the implications of such a joint decision on investor protection.