Voluntary Audits versus Mandatory Audits

• 成果类型: Article
• 署名作者: Lennox, Clive S.; Pittman, Jeffrey A.
• 署名单位: Nanyang Technological University; Memorial University Newfoundland
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-10098
• 发表日期: 2011
• 页码: 1655-1678
• 关键词: accounting information; financial-statements; corporate governance; Investor protection; Ownership structure; AGENCY COSTS; Bond market; debt; firm; disclosure

摘要

Exploiting a natural experiment in which voluntary audits replace mandatory audits for U.K. private companies, we analyze whether imposing audits suppresses valuable information about the types of companies that would voluntarily choose to be audited. We control for the assurance benefits of auditing to isolate the role signaling plays by focusing on companies that are audited under both regimes. These companies experience no change in audit assurance, although they can now reveal for the first time their desire to be audited. We find that these companies attract upgrades to their credit ratings because they send a positive signal by submitting to an audit when this is no longer legally required. In contrast, companies that dispense with being audited suffer downgrades to their ratings because avoiding an audit sends a negative signal and removes its assurance value.