Does High-Quality Auditing Mitigate or Encourage Private Information Collection?

Chen, Yangyang and Sadique, Shibley and Srinidhi, Bin and Veeraraghavan, Madhu (2017) Does High-Quality Auditing Mitigate or Encourage Private Information Collection? Contemporary Accounting Research, 34 (3). pp. 1622-1648.

Text A279_MadhuV_Does high quality auditing.pdf Restricted to Registered users only Download (221kB)

Abstract

The finance literature offers two competing possibilities on how investors respond to the qual-ity of public financial statements in their pricing decisions. They could collect either (i) more private information to benefit from lower information collection cost, or (ii) less private information because of lower incremental benefits. In this paper, we use the audit setting to examine which possibility prevails. Using the idiosyncratic return volatility as a proxy for firm-specific information, we show in a sample of 51,559 firm-year observations for 8,261 U.S. firms spanning the period of 2000–2010 that firms audited by higher-quality auditors exhibit lower average idiosyncratic return volatility but a higher concentration of it at the time of earnings announcements. Our findings are consistent with the argument that investors reduce private information collection in response to higher audit quality. Our findings are robust to alternative measures of audit quality and idiosyncratic return volatility.

Item Type:	Article
Subjects:	?? Finance ??
Divisions:	Finance and Strategy
Depositing User:	Mr. Muralidhara D
Date Deposited:	15 Sep 2018 11:45
Last Modified:	18 Feb 2019 11:32
URI:	http://tapmi.informaticsglobal.com/id/eprint/95

Actions (login required)

View Item

Downloads