Audited financial reporting and voluntary disclosure as complements: A test of the Confirmation Hypothesis |
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Authors: | Ray Ball Sudarshan Jayaraman Lakshmanan Shivakumar |
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Institution: | 1. The University of Chicago Booth School of Business, 5807 South Woodlawn Avenue, Chicago, IL 60637, United States;2. Olin Business School, Washington University in St. Louis, Campus Box 1133, One Brookings Drive, St. Louis, MO 63130, United States;3. London Business School, Regent''s Park, London NW1 4SA, United Kingdom |
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Abstract: | We examine the “confirmation” hypothesis that audited financial reporting and disclosure of managers' private information are complements, because independent verification of outcomes disciplines and hence enhances disclosure credibility. Committing to higher audit fees (a measure of financial statement verification) is associated with management forecasts that are more frequent, specific, timely, accurate and informative to investors. Because private information disclosure and audited financial reporting are complements, their economic roles cannot be evaluated separately. Our evidence cautions against drawing inferences exclusively from market reactions around “announcement periods” because audited financial reporting indirectly affects information released at other times and through other channels. |
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