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Disproportionate Insider Control And The Demand For Audit Quality, Arno Forst, Barry Hettler
Disproportionate Insider Control And The Demand For Audit Quality, Arno Forst, Barry Hettler
School of Accountancy Faculty Publications and Presentations
We examine the relationship between disproportionate insider control, enabled through dual-class share structures, and the demand for audit quality. Using a comprehensive hand-collected sample of U.S. dual-class firms, we find that, consistent with outside shareholders’ increased demand for external monitoring, as well as self-bonding by entrenched insiders, disproportionate insider control is positively associated with the propensity to hire a Big 4 or industry specialist auditor, auditor independence, and audit fees. Corroborating a self-bonding explanation, additional analyses show that audit quality mitigates the negative association of disproportionate insider control and firm value. In expanded analyses, we also investigate the separate effects …
Heightened Shareholder Interest In Firm Affairs Following The Inception Of Credit Default, Hyun Hong, Ji Woo Ryou, Anup Srivastava
Heightened Shareholder Interest In Firm Affairs Following The Inception Of Credit Default, Hyun Hong, Ji Woo Ryou, Anup Srivastava
School of Accountancy Faculty Publications and Presentations
The literature shows that a lender becomes reluctant to aid a distressed client after it receives insurance on its outstanding debt via a credit default swap (CDS). The onset of CDS trade thus accelerates client bankruptcy. We predict that the client firm’s shareholders would respond by demanding improved corporate governance and financial reporting quality to protect their interests. We find an increase in independence of the board of directors and a decline in the dual position of chief executive office and board chairman following the onset of CDS trading. We also find higher earnings response coefficient and trading volumes around …