The first essay examines the information content of material weakness (MW) disclosures conditional on previously announced financial restatements. I distinguish between MW disclosures that primarily serve as an advance warning of potential misstatements and MWs that are disclosed concurrent with, or after, a restatement announcement. I find that the market reaction to MW disclosures following restatements is significantly lower than the reaction to early MW disclosures, consistent with the idea that the informational value of the late MW disclosures was communicated via the restatement news. To emphasize the importance of distinguishing between MW-related restatements and other MWs, I also examine managerial turnover following MW disclosures, showing that after controlling for concurrent and preceding restatements, the impact of MW disclosures on turnover– shown in prior literature - is greatly reduced. The second paper examines the market reaction to restatement announcements by studying the combined effects of restatements and prior MW disclosures. I hypothesize that restatement announcements following a MW should elicit less negative market reaction compared to unwarned restatements. I develop a sample of firms whose restatements were preceded by a MW related to the restatement and/or disclosed in one of the prior four quarters preceding the restatement. I show that firms which announce a restatement following a MW disclosure experience significantly more negative returns than do firms whose restatements were not preceded by a MW. Further analyses show that firms which make the bad news warnings are in high-litigious industries and have more adverse future operating performance than firms which do not issue warnings. The third essay examines the impact of auditors’ litigation risk on auditors’ reporting decisions and audit fees using a novel approach developed in prior literature. I find that auditors facing high litigation risk are more likely to issue a going concern report and an adverse internal control opinion and to charge higher audit fees. Overall, the results suggest that auditors’ incentives to report conservatively to their clients are positively associated with auditors’ litigation exposure.Ph.D.Includes bibliographical referencesIncludes vitaby Nader Refat Reiad Wan
