Auditor Responses to Shareholder Activism

• 成果类型: Article
• 署名作者: Guo, Feng; Lin, Chenxi; Masli, Adi; Wilkins, Michael S.
• 署名单位: Iowa State University; University of Oklahoma System; University of Oklahoma - Norman; University of Kansas
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12630
• 发表日期: 2021
• 页码: 63-95
• 关键词: HEDGE FUND ACTIVISM; nonaudit services; LITIGATION RISK; MARKET; fees; INDEPENDENCE; INFORMATION; IMPACT; disclosure; QUALITY

摘要

In this paper, we investigate how auditors respond to shareholder activism against their clients. Our study is important because activism may be viewed by auditors as a source of increased engagement risk, thereby impacting audit outcomes. The potential relationship between shareholder activism and audit outcomes leads us to predict that activism targets will pay higher audit fees and also will be more likely to receive adverse internal control opinions (ICOs) and first-time going concern opinions (GCOs). Our results, which support all three predictions, suggest that the public scrutiny associated with activism campaigns heightens auditors' concerns about reputational damage and litigation risk. Consistent with this notion, we find that activism targets are more likely to experience accounting-related lawsuits. We also find that the increased likelihood of adverse ICOs documented in our baseline tests reflects higher-quality reporting rather than increased auditor conservatism. Overall, our findings suggest that activism campaigns spur auditor diligence while also increasing the possibility of negative outcomes that may not be fully anticipated by activist investors.