Bankruptcy Costs Using Equivalent Risk Classes: An Empirical Study

Terrance R. Skantz is an Assistant Professor of Accounting in the Department of Accounting. School of Business and Public Administration at the University of Houston, Clear Lake. Thomas H. Strickland is an Associate Professor of Finance in the Department of Management and Finance. School of Business and Economics at California State University, Hayward

House Prices and a Flood Event: An Empirical Investigation of Market Efficiency

In this study, house-price reactions to a first-time disastrous flood are investigated. Conventional wisdom predicted prices would decline and later regain lost value as the market forgot the flood. In fact, sample home prices do not fall immediately after the flood and do not later rise. On the other hand, when flood insurance premiums rise dramatically approximately one year after the flood, these higher rates are capitalized into home values and prices do decline. The findings are consistent with rational and efficient markets.

Auditor tenure, auditor specialization, and information asymmetry

Purpose – The purpose of this paper is to examine the relation between a company's bid-ask spread, a proxy for information asymmetry, and auditor tenure and specialization. Design/methodology/approach – The tests use clustered regression for a sample of 31,689 company-years from 1992 to 2001 and control for factors known to impact bid-ask spread in cross-section. Findings – The findings suggest that the market's perception of disclosure quality is higher and private information search opportunities are fewer for companies engaging industry specialist auditors. In addition, the paper finds that information asymmetry has a U-shaped relation to auditor tenure. This U-shaped relation holds for both specialists and non-specialists; however, the bid-ask spread for specialists tends to fall below that of non-specialists at all tenure intervals. Research limitations/implications – The findings may directly result from auditor tenure and specialization or it may be that those auditor-related characteristics are a subset of concurrent choices made by the company that impacts disclosure quality. Practical implications – Companies have incentives to lower information asymmetry and the findings document that the choice of a specialist auditor and the length of the auditor relationship can potentially influence this objective. Originality/value – The paper provides information to academics, regulators, companies, and auditors concerning the effect of auditor-client relationships on the level of information asymmetry. In addition, it shows the importance of industry specialization and audit firm tenure on audit quality.Auditing, Auditors, Bid offer spreads, Disclosure, Information strategy