This paper examines whether the identity of the individual audit partners provides informational value to capital market participants beyond the value provided by the identity of the audit firms. Using data from Taiwan, where firms are mandated to disclose the names of the engagement partners, we find a positive association between the partner's quality and the client firm's earnings response coefficient. We also find a positive market reaction when a firm replaces a lower quality partner with a higher quality one. Moreover, we find evidence that firms audited by higher quality partners experience smaller initial public offering (IPO) underpricing and are able to obtain better debt contract terms. Overall, these results suggest that the quality of engagement partners matters to capital market participants.
The Securities and Exchange Commission (SEC) reviews company filings (10-Q, 10-K, S-1, etc.) submitted to them. If a review identifies potential deficiencies, the SEC staff sends the company a comment letter seeking clarification, additional information, and ultimately, perhaps, revision of the filing or future filings. We examine the content, resolution, and ensuing informational consequences of SEC comment letters. The content analysis shows that nearly half of all comments involve accounting application, financial reporting, and disclosure issues. More than 17 percent of our sample cases result in immediate amended filings to resolve the issue(s) arising from the comment letters, and financial statements and/or footnotes are frequently revised. Following comment letter resolution, the adverse selection component of the bid-ask spread declines and Earnings Response Coefficients (ERCs) increase. Our results provide little support for the conjecture that the market interprets the receipt of a comment letter as a signal that the firm has poor reporting quality. Finally, we find no evidence that comment letter firms increase the quantity or change the type of voluntary disclosure, thereby eliminating a possible competing explanation for the improved information environment. We conclude the SEC's oversight has beneficial informational effects. Surveillance r eglementaire de l'information financi ere : les lettres d'observations de la SEC r esoudre la ou les questions soulev ees dans les lettres d'observations, et les etats financiers et (ou) les notes font fr equemment l'objet d'une r evision. A la suite de la r esolution des questions soulev ees dans les lettres d'observations, la composante d'antis election de l' ecart acheteur-vendeur d ecline et les coefficients de r eaction aux r esultats augmentent. L' etude livre peu d'indications confirmant l'hypoth ese selon laquelle le march e interpr eterait la r eception d'une lettre d'observations comme un signal de la pi etre qualit e de l'information fournie par la soci et e. Enfin, les auteurs ne rel event aucun el ement qui confirmerait que les soci et es recevant des lettres d'observations augmentent le volume d'information facultative qu'elles publient ou en modifient la nature, ce qui elimine la possibilit e d'invoquer une autre explication : celle d'un meilleur environnement d'information. Les auteurs concluent que la surveillance de la SEC a des r epercussions b en efiques sur l'information.
This paper investigates whether gubernatorial elections affect state governments' accounting choices. We identify two accounts, the compensated absence liability account and the unfunded pension liability account, which provide incumbent gubernatorial candidates with flexibility for manipulation. We find that in an election year, the liability associated with compensated absences and unfunded pension liabilities are both systematically lower. We also find that the variation in these employment related liabilities is correlated with proxies for the incumbent's incentives and ability to manipulate their accounting reports. Jointly these results suggest that state governments manipulate accounting numbers to present a healthier financial picture in an election year.1
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