The Effect of Corporate Social Responsibility Investment, Assurance, and Perceived Fairness on Investors’ Judgments

Both the supply and demand for corporate social responsibility (CSR) information are increasing (e.g., Simnett et al. 2009a; Holder-Webb et al. 2009; Cohen et al. 2011; Dhaliwal et al. 2011). An overarching question is whether CSR disclosures matter to individual investors. An issue of importance is what CSR factors affect investors‟ judgments. This paper investigates whether and how information about a company‟s CSR investment (either above or below the industry average) and whether the information has received third-party assurance services or not affects an investor‟s judgments about the company. Given the research that has documented how fairness affects business decision making (Cohen et al. 2007; Bierstaker et al. 2011), we also examine how the perceived fairness of the CSR activities affects investors‟ judgments. To examine these issues, we conducted a 2 x 2 between-subjects online sequential experiment in which investors provide an initial stock price assessment in the presence of financial information, then provide a revised assessment after viewing CSR information. Consistent with expectations, CSR investment and the perceived fairness of the CSR activities are associated with higher stock price assessment revisions, holding constant the positive nature of CSR performance. In addition, consistent with attribution theory (Hirst et al. 1995; Coram et al. 2009), the stock price revisions are higher in the presence of CSR assurance only when the CSR information is positive (i.e., above industry average). Implications for CSR research and practice are discussed

Effects Of Earnings Forecasts And Heightened Professional Skepticism On The Outcomes Of Client-Auditor Negotiation

Ethics has been identified as an important factor that potentially affects auditors\u27 professional skepticism. For example, prior research finds that auditors who are more concerned with professional ethics exhibit greater professional skepticism. Further, the literature suggests that professional skepticism may lead the auditor to more vigilantly resist the client\u27s position in financial reporting disputes. These reporting disputes are generally resolved through negotiations between the auditor and client to arrive at the final reported amounts. To date, the role that professional skepticism potentially plays in the negotiation process has been relatively unexplored. The literature prior to the enactment of Sarbanes-Oxley (SOX) suggests that auditors are more likely to approve a client position when the matter in dispute is relatively ambiguous and when changing the client\u27s position will result in the client failing to meet analysts\u27 expectations. However, changes resulting from SOX have led auditors to be more vigilant and therefore results found in the pre-SOX environment may not hold in the current environment where auditors are held more accountable for their actions. Results from an experiment with experienced audit managers and partners suggest that in the post-SOX climate, auditors\u27 negotiations do not appear to be substantively influenced by management being able to meet or beat forecasts. Moreover, we find that when auditors exhibit heightened professional skepticism, they are more ethical by being conservative and they stand more resolute than when auditors do not exhibit heightened professional skepticism. Finally, although we do not find a main effect for the influence of earnings forecast, we do find a significant interaction between earnings forecast and heightened professional skepticism. Implications for practice and research are then presented. © 2012 Springer Science+Business Media B.V

Effects of Earnings Forecasts and Heightened Professional Skepticism on the Outcomes of Client-Auditor Negotiation

Ethics has been identified as an important factor that potentially affects auditors\u27 professional skepticism. For example, prior research finds that auditors who are more concerned with professional ethics exhibit greater professional skepticism. Further, the literature suggests that professional skepticism may lead the auditor to more vigilantly resist the client\u27s position in financial reporting disputes. These reporting disputes are generally resolved through negotiations between the auditor and client to arrive at the final reported amounts. To date, the role that professional skepticism potentially plays in the negotiation process has been relatively unexplored. The literature prior to the enactment of Sarbanes-Oxley (SOX) suggests that auditors are more likely to approve a client position when the matter in dispute is relatively ambiguous and when changing the client\u27s position will result in the client failing to meet analysts\u27 expectations. However, changes resulting from SOX have led auditors to be more vigilant and therefore results found in the pre-SOX environment may not hold in the current environment where auditors are held more accountable for their actions. Results from an experiment with experienced audit managers and partners suggest that in the post-SOX climate, auditors\u27 negotiations do not appear to be substantively influenced by management being able to meet or beat forecasts. Moreover, we find that when auditors exhibit heightened professional skepticism, they are more ethical by being conservative and they stand more resolute than when auditors do not exhibit heightened professional skepticism. Finally, although we do not find a main effect for the influence of earnings forecast, we do find a significant interaction between earnings forecast and heightened professional skepticism. Implications for practice and research are then presented. © 2012 Springer Science+Business Media B.V