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Expanded auditor’s reports and voluntary disclosure

Author

Listed:
  • Huang, Wenxuan
  • Xu, Weidong
  • Li, Donghui
  • (Duncan) Liu, Jiancheng

Abstract

Employing a panel sample of 5,090 firm-years from 981 UK firms during the period from 2010 to 2016, we investigate the impact of the implementation of expanded auditor’s reports (EARs) on corporate voluntary disclosure. We find that the likelihood and frequency of voluntary disclosure significantly decrease after the implementation of EARs. In addition, the total number of risks of material misstatement (RMMs) has no impact on voluntary disclosure after the implementation of EARs, while certain RMMs categories (i.e., entity rather than account risks, and firm-specific rather than industry-level risks) display a more pronounced impact on corporate voluntary disclosure. In further analysis, we find that the mandatory adoption of EARs increases the proportion of long-term forecasts, riches the content of voluntary disclosure, and elicits a more positive market response to the announcement of voluntary disclosure. Cross-sectional analyses show that the impact of the implementation of EARs on voluntary disclosure can be magnified by a higher level of media coverage, especially breaking news coverage. Our results remain valid after considering various robustness tests and selection bias concerns.

Suggested Citation

  • Huang, Wenxuan & Xu, Weidong & Li, Donghui & (Duncan) Liu, Jiancheng, 2024. "Expanded auditor’s reports and voluntary disclosure," Journal of Contemporary Accounting and Economics, Elsevier, vol. 20(3).
    • Handle: RePEc:eee:jocaae:v:20:y:2024:i:3:s1815566924000432
    DOI: 10.1016/j.jcae.2024.100443
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    More about this item

    Keywords

    Voluntary disclosure; Expanded auditor’s report; Forecast content; Market response; Media;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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