Investor Sentiment, Misstatements, and Auditor Behavior*

• 成果类型: Article
• 署名作者: Amin, Keval; Eshleman, John Daniel; Guo, Peng
• 署名单位: State University of New York (SUNY) System; Stony Brook University; Rutgers University System; Rutgers University New Brunswick; Rutgers University Camden
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12616
• 发表日期: 2021
• 页码: 483-517
• 关键词: big 4 auditors; LITIGATION RISK; industry specialization; MARKET RESPONSE; earnings; fees; management; INDEPENDENCE; QUALITY; RESTATEMENTS

摘要

High investor sentiment has been linked with opportunistic managerial behavior in the face of more optimistic investors and analysts. We extend this line of work by documenting that the likelihood of misstatements is higher when sentiment is high. Although this would suggest elevated audit risk, we posit that a contemporaneous reduction in auditors' litigation cost could drive down audit fees and going concern opinion (GCO) reporting conservatism in order to please clientele. Consistent with this notion, we document that auditors charge lower fees and report GCOs less conservatively when sentiment is high. However, this reduction in reporting conservatism is unwarranted; results reveal that auditors are less likely to issue GCOs to clients which subsequently file for bankruptcy during high sentiment periods. We conduct additional tests to examine whether auditors' litigation costs indeed vary with sentiment and document that auditors are less likely to be sued and the market reacts less negatively to misstatement announcements when sentiment is high. Collectively, our findings suggest that, although misstatement risk is increasing with sentiment, auditors' litigation risk actually declines.