This paper demonstrates the existence of two different kinds of externalities induced by an auditor servicing multiple clients at the same time. First, we show that the capital market price for a client can increase in the number of qualified reports that his auditor issues to his other clients, thus producing a stock price externality. Second, when the audit firm has limited wealth, an additio...

Article history: Received 6 January 2007 Received in revised form 6 February 2008 Accepted 26 February 2008 Available online 6 March 2008 We study reputations with imperfect audit and a reputation market. The main result shows the existence of a separating equilibrium in the reputation market, which contrasts with Tadelis [Tadelis, S., 2002, The market for reputations as an incentive mechanism,...

Stock price synchronicity at a country level has been the subject of many previous studies, but for most investors it is more relevant at a firm level. Working from the perspective of a foreign investor stock price synchronicity is analyzed at the firm-level in the hot Chinese stock market. The impact of foreign ownership, institutional ownership, the concentration of large shareholders, and au...

Across the world there have been important regulation related to audit matters. Significant efforts made in recent years improve firm trustfully with a focus on significance of corporate governance for market perception quality. The IAASB published 2020 exposure draft “Fraud and going concern an financial statements” Financial Reporting Council (FRC) Institute Chartered Acco...

There is now a great deal of evidence that large audit firms provide higher quality audits and offer greater credibility to clients' financial statements than small audit firms. The stock market reacts more favourably when a company switches to a large auditor rather than to a small auditor (Nichols and Smith, 1983; and Eichenseher et al., 1989); large audit firms give more accurate signals of ...

We investigate whether the financial riskiness of large U.S. audit firm clienteles varied with the changing audit litigation liability environment during the period 1975–99. Partitioning the period of study into four distinct periods (a benchmark period (1975–84), a period of increasing concerns about litigation liability (1985–89), a period of lobbying for reform (1990–94), and a post-relief p...

Formulae display:?Mathematical formulae have been encoded as MathML and are displayed in this HTML version using MathJax order to improve their display. Uncheck the box turn off. This feature requires Javascript. Click on a formula zoom.