The cost of sin:the effect of social norms on audit pricing

In this paper we provide evidence for the effects of social norms on audit pricing by studying companies belonging to the alcohol, firearms, gambling, military, nuclear power, and tobacco industries,which are often described as “sin” companies. We hypothesize that the disparities between “sin” firms operations and prevailing social norms create an adverse context which heightens the client's business risk assessment by auditors and is, thereby, reflected in the pricing decisions for audit and consulting services. Having controlled for the impact of variables relating to client attributes, auditor attributes and engagement attributes, we demonstrate that audit firms charge significantly higher audit and consulting fees to companies that deviate from prevailing social norms. Additionally,we show that audit pricing levels within the “sin” group depend both on prevailing political views and on the level of “vice” exhibited by “sin” companies

The effect of timeliness and credit ratings on the information content of earnings announcements

Abstract: This paper investigates the impact of timeliness and credit ratings on the information content of the earnings announcements of Greek listed firms from 2001 to 2008. Using the classical event study methodology and regression analysis, we find that firms tend to release good news on time and are inclined to delay the release of bad news. We also provide evidence that the level of corporate risk differentiates the information content of earnings according to the credit rating category. Specifically, firms displaying high creditworthiness enjoy positive excess returns on earnings announcement dates. In contrast, firms with low creditworthiness undergo significant share price erosions on earnings announcement days. We also observe a substitution effect between timeliness and credit ratings in relation to the information content of earnings announcements. Specifically, we find that as the credit category of earnings-announcing firms improves, the informational role of timeliness is mitigated

Corporate social responsibility and earnings management in U.S. banks

Business decision making depends on financial reporting quality. In identifying the drivers of financial reporting quality, proxied by earnings management (EM), prior literature has drawn attention to the association between corporate EM practices and commitment to corporate social responsibility (CSR). Empirical evidence, however, provides inconclusive results regarding the direction of this association. Using simultaneous equations, we examine the bi-directional CSR-EM relationship in U.S. commercial banks. We demonstrate that, although banks that engage in EM practices are also actively involved in CSR, the reverse relationship is not significant. We provide implications for investors, analysts, business participants and regulators

Transplanting Anglo-American accounting oversight boards to a diverse institutional context

The introduction of accounting and auditing oversight boards (OBs) has been promoted on a global scale as a key component of the international financial architecture that has emerged over the past two decades. Such institutions, modeled on the Anglo-American tradition, are domestically organized and embedded within distinctively diverse institutional contexts. Their role is to ease agency problems, improve the quality of financial reporting, and help provide stability in the global financial system. We employ an institutional approach, located within the broader political economy framework of global capitalism, to examine the establishment and operation of the new regulatory regime in Greece. Greece, a member of the European Union, exhibits characteristics of a "delegative" democracy, i.e. a traditionally weak institutionalization, reform (in)capacity problems and a clientelistic political system. Our case study shows that the formation and operation of the newly-established system of oversight is conditioned by local political and economic constraints and, thus, does not automatically translate into concrete benefits for the quality of financial reporting. We also draw attention to the structural mismatch between a progressing globalized financial integration and the fragmented nature of the system of oversight, and illustrate that OBs' independence from local governments is an important but neglected issue

Financial Characteristics of Companies Audited by Large Audit Firms

Purpose “ The purpose of this paper is to examine how financial characteristics associated with the choice of a big audit firm with further investigation on the agency costs of free cash flows.Design/methodology/approach “ The sample used for this work includes industrial listed companies from Germany and France. To test our hypothesis, we used a number of logit models, extending the standard model selection audit firm, to include the variables of interest. Following previous work, our dependent dummy variable is Big4 or non-Big4.Findings “ We observed that most independent variables in the German companies show similar results to previous work, but we did not have the same results for the French industry. Moreover, our findings suggest that the total debt and dividends can be an important reason for determining the choice of a large audit firm, reducing agency costs of free cash flows.Research limitations/implications “ This study has some limitations on the measurements of the cost of the audit fees and also generates opportunities for additional searching.Originality/value “ The paper provides only one aspect to explain the relationship between the problems of agency costs of free cash flow and influence in choosing a large auditing firm, which stems from investors\u27 demand for higher quality audits

Voluntary disclosure in a European emerging capital market, the case of the Athens stock exchange

This thesis investigates empirically and explains theoretically the voluntary disclosure practices of public companies listed on an emerging European capital market at a time of rapid change. An investigation of the voluntary disclosure definition clarifies research approaches and definitions in prior empirical studies. The thesis also investigates association between selected corporate characteristics and voluntary disclosure. A voluntary disclosure index is developed to measure the extent of voluntary disclosure published in annual reports issued by 87 companies listed on the Athens Stock Exchange. Segmentation of the voluntary disclosure index into categories of corporate environment, social responsibility and financial information provides scope for further investigation and richer interpretation by testing corporate characteristics against each category of voluntary disclosure. Theoretical considerations and particular institutional and regulatory characteristics are applied to formulate testable hypotheses relating to size, gearing, profitability, liquidity, share marketability, industry, share volatility, share yield, type of report, and listing status. Using univariate and linear regression analysis, significant independent variables that explain variation in overall voluntary disclosure are found to be size, type of report, listing status, industry and share yield. It is also found that the observed association meets expectations in the separate categories of disclosure based on previous empirical work. Interview research is employed to explore further issues related to voluntary disclosure operation aiming at a better assessment of voluntary disclosure. Perceptions of influential market participants (directors, financial analysts, auditors, regulators and bankers) cast light on issues related to cost and benefits related issues, use and credibility of voluntary disclosures. The nature of voluntary disclosure and private voluntary disclosure are assessed through interview analysis. Overall research findings support systematic associations between corporate characteristics and voluntary disclosure. Interpretation is provided for significant and non-significant associations. Conclusions are drawn regarding the relative usefulness of theoretical frameworks in explaining voluntary disclosure in the case of Greece. Proposals for further research and policy implications are discussed.This thesis investigates empirically and explains theoretically the voluntary disclosure practices of public companies listed on an emerging European capital market at a time of rapid change. An investigation of the voluntary disclosure definition clarifies research approaches and definitions in prior empirical studies. The thesis also investigates association between selected corporate characteristics and voluntary disclosure. A voluntary disclosure index is developed to measure the extent of voluntary disclosure published in annual reports issued by 87 companies listed on the Athens Stock Exchange. Segmentation of the voluntary disclosure index into categories of corporate environment, social responsibility and financial information provides scope for further investigation and richer interpretation by testing corporate characteristics against each category of voluntary disclosure. Theoretical considerations and particular institutional and regulatory characteristics are applied to formulate testable hypotheses relating to size, gearing, profitability, liquidity, share marketability, industry, share volatility, share yield, type of report, and listing status. Using univariate and linear regression analysis, significant independent variables that explain variation in overall voluntary disclosure are found to be size, type of report, listing status, industry and share yield. It is also found that the observed association meets expectations in the separate categories of disclosure based on previous empirical work. Interview research is employed to explore further issues related to voluntary disclosure operation aiming at a better assessment of voluntary disclosure. Perceptions of influential market participants (directors, financial analysts, auditors, regulators and bankers) cast light on issues related to cost and benefits related issues, use and credibility of voluntary disclosures. The nature of voluntary disclosure and private voluntary disclosure are assessed through interview analysis. Overall research findings support systematic associations between corporate characteristics and voluntary disclosure. Interpretation is provided for significant and non-significant associations. Conclusions are drawn regarding the relative usefulness of theoretical frameworks in explaining voluntary disclosure in the case of Greece. Proposals for further research and policy implications are discussed

Stock market reaction to dividend announcements: Evidence from the Greek stock market

This study investigates the market reaction to cash dividend announcements for the period 2000-2004 employing data from the Athens Stock Exchange (ASE). In particular, the paper examines both the stock price and trading volume response to dividend distribution announcements. Dividend distributions in Greece demonstrate noticeable differences to those of the US, the UK and other developed markets. First, dividends in Greece are paid annually rather than quarterly or semi-annually. Second, the Greek corporate laws 2190/1920 and 148/1967 specifically designate the minimum amount for distribution from the taxed corporate profits. Third, neither tax on dividends nor on capital gains was imposed during the period under examination. Fourth, Greek listed firms are characterized by high ownership concentration where major owners are usually involved in management and therefore have less need for dividend announcements as an information source. Despite this neutralized information and tax environment, we document significant market reaction to dividend change announcements, lending support to the "information content of dividends hypothesis".Dividends Signaling effects Stock prices Trading volume Athens Stock Exchange

Loan Loss Provisions, Earnings Management and Capital Management under IFRS: The Case of EU Commercial Banks

Earnings management, Capital management, Loan loss provisions, IFRS, European Union, C23, G14, M41,