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Three essays on material weakness disclosures, restatement announcements, and auditor's litigation risk
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Title
Three essays on material weakness disclosures, restatement announcements, and auditor's litigation risk
Name
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Wans
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Nader Refat Reiad
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1980-
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Nader Wans
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author
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Sarath
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Bharat
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Bharat Sarath
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Advisory Committee
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chair
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Palmon
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Dan
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Dan Palmon
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internal member
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Anantharaman
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Divya
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Divya Anantharaman
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Advisory Committee
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internal member
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Livnat
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Joshua
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Joshua Livnat
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Advisory Committee
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Rutgers University
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degree grantor
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Graduate School - Newark
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school
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Text
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theses
OriginInfo
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2012
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2012-05
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2012
Place
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xx
Language
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eng
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Management
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Rutgers University Electronic Theses and Dissertations
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ETD_4024
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electronic resource
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Extent
x, 138 p. : ill.
Note
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Ph.D.
Note
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Includes bibliographical references
Note
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Includes vita
Note
(type = statement of responsibility)
by Nader Refat Reiad Wans
Subject
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Topic
Misleading financial statements
Subject
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Topic
Audited financial statements
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Topic
Disclosure in accounting
Subject
(authority = ETD-LCSH)
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Disclosure of information
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http://hdl.rutgers.edu/1782.1/rucore10002600001.ETD.000065068
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Graduate School - Newark Electronic Theses and Dissertations
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rucore10002600001
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doi:10.7282/T3PN94M0
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ETD doctoral
Abstract
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.
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.
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Rights
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The author owns the copyright to this work.
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Name
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Wans
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Nader
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Permission or license
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2012-04-25 03:48:21
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Nader Wans
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Rutgers University. Graduate School - Newark
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Author Agreement License
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I hereby grant to the Rutgers University Libraries and to my school the non-exclusive right to archive, reproduce and distribute my thesis or dissertation, in whole or in part, and/or my abstract, in whole or in part, in and from an electronic format, subject to the release date subsequently stipulated in this submittal form and approved by my school. I represent and stipulate that the thesis or dissertation and its abstract are my original work, that they do not infringe or violate any rights of others, and that I make these grants as the sole owner of the rights to my thesis or dissertation and its abstract. I represent that I have obtained written permissions, when necessary, from the owner(s) of each third party copyrighted matter to be included in my thesis or dissertation and will supply copies of such upon request by my school. I acknowledge that RU ETD and my school will not distribute my thesis or dissertation or its abstract if, in their reasonable judgment, they believe all such rights have not been secured. I acknowledge that I retain ownership rights to the copyright of my work. I also retain the right to use all or part of this thesis or dissertation in future works, such as articles or books.
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2012-05-31
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2013-05-31
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Access to this PDF has been restricted at the author's request. It will be publicly available after May 31st, 2013.
Copyright
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Copyright protected
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Open
Reason
Permission or license
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