Board Structure and Modified Audit Opinions: Evidence from the Portuguese Stock Exchange

Farinha, Jorge; Viana, Luis Filipe

doi:10.1111/j.1099-1123.2009.00394.x

Cited by 34 publications

(76 citation statements)

References 44 publications

(79 reference statements)

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“…The relationship does not appear to hold in France, where the size of the audit firm is independent of the client's level of earnings management, a result attributed to the lower litigation risk under the French Civil Code (Piot and Janin, 2007). Firms with higher reporting quality are more likely to be issued with a clean audit opinion, while evidence from Portugal suggests firms with more independent boards are less likely to receive a modified audit opinion (Farinha and Viana, 2009). Auditors make judgments on the amount of audit work required, based upon characteristics of the client.…”

Section: Earnings Managementmentioning

confidence: 98%

Corporate governance, accounting and finance: A review

Brown¹,

Beekes²,

Verhoeven³

2010

Accounting &Amp; Finance

485

410

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We review accounting and finance research on corporate governance (CG). In the course of our review, we focus on a particularly vexing issue, namely endogeneity in the relationships between CG and other matters of concern to accounting and finance scholars, and suggest ways to deal with it. Given the advent of large commercial CG databases, we also stress the importance of how CG is measured and in particular, the construction of CG indices, which should be sensitive to local institutional arrangements, and the need to capture both internal and external aspects of governance. The 'stickiness' of CG characteristics provides an additional challenge to CG scholars. Better theory is required, for example, to explain whether various CG practices substitute for each other or are complements. While a multidisciplinary approach to developing better theory is never without its difficulties, it could enrich the current body of knowledge in CG. Despite the vastness of the existing CG literature, these issues do suggest a number of avenues for future research.

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Section: Earnings Managementmentioning

confidence: 98%

Corporate governance, accounting and finance: A review

Brown¹,

Beekes²,

Verhoeven³

2010

Accounting &Amp; Finance

485

410

View full text Add to dashboard Cite

show abstract

“…3 The presence of a qualified audit opinion has been shown to be informative with respect to stock returns (Choi & Jeter, 1992) and bankruptcy events (Kennedy & Shaw, 1991). Bartov et al (2000), Butler et al (2004), Chen et al (2001), Farihna and Viana (2009), among others, use the audit opinion as a proxy for accounting quality.…”

Section: Previous Literaturementioning

confidence: 99%

“…The dependent variable (IA) is a dummy variable that equals 1 when the company receives a qualified audit opinion, and zero otherwise. Some other papers have used audit opinion as a proxy for financial reporting quality (Bartov et al, 2000;Butler et al, 2004;Chen et al, 2001;Farihna & Viana, 2009;García Blandón & Argilés Bosch, 2013;Pucheta-Martínez & de Fuentes, 2007).…”

Section: Variablesmentioning

confidence: 99%

“…Previous literature shows that big auditors provide higher quality services (Teoh & Wong, 1993) and that they are also better able to express a qualified opinion (Farihna & Viana, 2009;Lennox, 1999). Thus, we propose BIGFOUR as a dummy control variable that equals 1 if the opinion is issued by a Big Four audit firm, and zero otherwise.…”

Section: Variablesmentioning

confidence: 99%

“…However, accounting quality is a noisy theoretical construct that is operationalized using a range of measures, the validity of which is unknown relative to the theoretical constructs of interest (Suberi, Hsu, & Wyatt, 2012). 1 In line with Bartov, Gul, and Tsui (2000), Butler, Leone, and Willenborg (2004), Chen, Chen, and Su (2001), Farihna and Viana (2009), and Pucheta-Martínez and de Fuentes (2007), among others, we use the audit opinion as a proxy for accounting quality. According to Farihna and Viana (2009), whereas the audit opinion is observable, discretionary accruals (i.e., the proxy for earnings management generally used in the prior literature) are unobservable and must be estimated using models that can lead to wrong conclusions due to specification problems (Dechow, Richardson, & Tuna, 2003;Dechow, Sloan, & Sweeney, 1995;McNichols, 2000).…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Institutional Investors on Boards and Audit Committees and Their Effects on Financial Reporting Quality

Pucheta‐Martínez¹,

García‐Meca²

2014

Corporate Governance

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Manuscript Type Empirical Research Question/Issue This study examines how the presence of representatives of institutional investors as directors on boards or on audit committees enhances financial reporting quality, reducing the probability that the firm receives qualified audit reports. We focus on directors who maintain business relations with the firm on whose board or committee they sit (pressure‐sensitive directors). We also investigate the specific role of bank directors and examine their effects on financial reporting quality when they act as shareholders and directors. Research Findings/Insights Our results suggest that institutional directors are effective monitors, which leads to higher quality financial reporting and, therefore, a lower likelihood that the firm receives a qualified audit report. Consistent with the relevant role of business relations with the firm, we find that directors appointed to both boards and audit committees by pressure‐sensitive investors have a larger effect on financial reporting quality as it is more likely that the auditor issues an unqualified audit opinion. Nevertheless, when analyzed separately, only savings bank representatives on the board increase financial reporting quality. Theoretical/Academic Implications The results confirm that board characteristics have an important influence on financial reporting quality, in line with the views that have been expressed by several international bodies. The findings also suggest that both researchers and policy makers should no longer consider institutional investors as a whole, given than directors appointed by different types of institutional investors have various implications on financial reporting quality, measured by the type of audit opinion. Practitioner/Policy Implications This study makes its core contribution by empirically showing that directors appointed by different types of institutional investors have diverse implications on financial reporting quality. This evidence can be potentially helpful in providing a basis for regulatory actions, namely those aiming to influence the structure of the board of directors. The results have important implications for supervisors and regulators, who will benefit from an understanding of how the presence of directors on boards of savings and commercial banks in nonfinancial firms affects financial reporting quality in a bank‐based system.

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