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This paper examines country specific herding behavior in European liquid constituent indices for the period of 2001-2012. While we report insignificant results for the whole period, we document significant herding behavior during crises and asymmetric market conditions. Particularly, herding effect is pronounced in most continental countries during the global financial crisis and Nordic countries during the Eurozone crisis. However, PIIGS countries are the victims in both crises. Furthermore, we find evidence that the cross sectional dispersions of returns can be partly explained by the cross sectional dispersions of the other markets, with Germany having the greatest influence on the regional cross-country herding effect. Apprehensions heighten among the regulators, policy makers, and investors in the European markets for the herding behavior during volatile market conditions. JEL Classification: G01, G12, G15

We propose a theoretical model that argues that the expected financial distress costs in small- and medium-sized enterprises (SMEs) result from the interaction of the financial distress likelihood and the magnitude of the consequences borne whenever financial failure occurs. The empirical evidence from five European countries, where the insolvency laws are representative of prevailing institutional traditions, supports this model. We reveal that the ex ante financial distress costs suffered by a firm depend not only on the likelihood of financial distress but also on the variables that influence the amount of time and costs incurred during the insolvency process. Specifically, financial costs are lower where the capacity to use tangible assets as collateral and short-term debt is greater; they are higher the greater the use of long-term secured debt. Additionally, the effect of these variables is moderated by a firm’s ownership and by the nature of the insolvency law in operation. The timely management of these variables can avoid the high costs involved in an involuntary exit.

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In recent years there has been much debate in the UK regarding the value and feasibility of the small company audit. The lack of formal internal control systems and the application of universal auditing standards has given rise to the use of a special 'Small Company (Example 6) Audit Qualification'. However, doubts concerning the uniformity of practice between auditors has created difficulties for users in interpreting its meaning. This paper examines the extent to which a number of financial, organisational and auditor variables are able to explain the receipt of a 'Small Company Audit Qualification'. The main empirical findings, using multivariate logistic analysis on a sample of 540 small company reports, are that companies audited by large audit practices, companies which had a prior year qualification, a secured loan, declining earnings, large audit lags and few non-director shareholders were more likely to receive an audit qualification than other companies.