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Governance Role of Auditors and Legal Environment: Evidence from Corporate Disclosure Transparency

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  • Sam Han
  • Tony Kang
  • Yong Keun Yoo

Abstract

In a sample of firms originating from 20 countries, we examine whether and how auditor size (our proxy for audit quality) associates with corporate disclosure transparency. While prior studies examine the relation between auditor size and several aspects of financial reporting quality (e.g. discretionary accruals, restatements, etc.), there is limited evidence on how auditor size relates to disclosure transparency. There is also mixed evidence on how auditor size relates to reporting quality in different legal environments. We find that auditor size is positively associated with disclosure transparency around the world and that the association is stronger in code law regimes than in common law regimes. The latter finding supports the view that audits play a greater governing role in weaker legal environments.

Suggested Citation

  • Sam Han & Tony Kang & Yong Keun Yoo, 2012. "Governance Role of Auditors and Legal Environment: Evidence from Corporate Disclosure Transparency," European Accounting Review, Taylor & Francis Journals, vol. 21(1), pages 29-50, May.
    • Handle: RePEc:taf:euract:v:21:y:2012:i:1:p:29-50
    DOI: 10.1080/09638180.2011.599928
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    Cited by:

    1. Ola Nilsson, 2018. "The relationship between shareholder protection through regulation and the demand for external auditor services," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 15(3), pages 162-175, August.
    2. Mari Paananen & Annelies Renders & Marita Blomkvist, 2016. "Causes and Consequences of Improvements in the Information Environment for Swedish Small and Mid-Sized Firms," Accounting in Europe, Taylor & Francis Journals, vol. 13(1), pages 21-42, April.
    3. Imran Abbas Jadoon & Akhter Ali & Usman Ayub & Muhammad Tahir & Raheel Mumtaz, 2021. "The impact of sustainability reporting quality on the value relevance of corporate sustainability performance," Sustainable Development, John Wiley & Sons, Ltd., vol. 29(1), pages 155-175, January.
    4. Li, Changhong & Li, Jialong & Liu, Mingzhi & Wang, Yuan & Wu, Zhenyu, 2017. "Anti-misconduct policies, corporate governance and capital market responses: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 48(C), pages 47-60.
    5. Liu, Ningyue & Laing, Elaine & Cao, Yue & Zhang, Xiaofei, 2018. "Institutional ownership and corporate transparency in China," Finance Research Letters, Elsevier, vol. 24(C), pages 328-336.
    6. Nurunnabi, Mohammad, 2015. "The impact of cultural factors on the implementation of global accounting standards (IFRS) in a developing country," Advances in accounting, Elsevier, vol. 31(1), pages 136-149.
    7. Guo, Jianan & Islam, Muhammad Azizul & Jain, Ameeta & van Staden, Chris J., 2022. "Civil liberties and social and environmental information transparency: A global investigation of financial institutions," The British Accounting Review, Elsevier, vol. 54(1).

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