Hollis Ashbaugh Skaife

Do Nonaudit Services Compromise Auditor Independence? Further Evidence

This paper challenges the findings of Frankel et al. (2002) (FJN). The results of our discretionary accruals tests differ from FJNs when we adjust discretionary current accruals for firm performance. In our earnings benchmark tests, in contrast to FJN we find no statistically significant association between firms meeting analyst forecasts and auditor fees. Our market reaction tests also provide different results than those reported by FJN. Overall, our study indicates that FJNs results are sensitive to research design choices, and we find no systematic evidence supporting their claim that auditors violate their independence as a result of clients purchasing relatively more nonaudit services.

Does Stock Price Synchronicity Represent Firm-Specific Information? The International Evidence

Note: This paper has been superseded by Gassen, LaFond, Skaife and Veenman: Illiquidity and Stock Price Synchronicity, http://ssrn.com/abstract=2405465. Much of prior international accounting research implicitly assumes that stock prices capture similar amounts of firm-specific information across countries. Recent research asserts that stock price synchronicity, defined as the R2 from asset pricing regressions, is a useful measure of the amount of firm-specific information impounded in stock prices in international markets. However, the results of our empirical tests provide little support for using stock price synchronicity as a measure of firm-specific information internationally. We develop an alternative measure of firm-specific information impounded in stock price based on the percentage of zero-return days, i.e., the zero-return metric, and repeat the analyses. Overall, our results suggest that the zero-return metric is a better measure of firm-specific information impounded into share prices than the synchronicity measure internationally.

Can Audit Reforms Affect the Information Role of Audits? Evidence from the German Market

We investigate whether audit reforms affect the information role of audits in a country where the audit traditionally serves a statutory reporting function. Specifically, we investigate the audit market effects of audit reforms mandated by the German government in the Act on Control and Transparency of Enterprises. We test for differences in the types of audit reports issued, the information content of first time going-concern audit opinions, and the demand for dominant audit suppliers pre and post the implementation of the Act to draw inferences on whether the audit reforms enhanced the information role of German audits. We find an increase in the frequency of modified audit opinions after the audit objective changed from verifying assets in place to identifying and reporting concern uncertainties and non-compliant financial reporting practices. We also find an increase in the information content of first time going-concern audit reports issued after the audit reforms are implemented. In addition, the results also indicate an increase in the demand for dominant audit suppliers in the post-reform years. Moreover, we document a significant increase in the number of auditor lawsuits after the audit reforms went into effect. Collectively, our results suggest that the audit reforms improved the information role of German audits and that German firms responded to the improvement in audit reporting by increasing their demand for dominant audit suppliers.

Does Stock Price Synchronicity Reflect Information or Noise? The International Evidence

Prior research asserts that stock price synchronicity, defined as the R2 from asset pricing regressions, is a useful measure of the relative amount of firm-specific information reflected in stock prices. This paper investigates the validity of the information-based interpretation of stock price synchronicity in international markets. The results of our analyses provide little support for using stock price synchronicity as a measure of firm-specific information internationally. We develop an alternative measure of firm-specific information based on the percentage of zero return weeks, and repeat the analyses. The results suggest that the zero-return metric better captures differences in the amount of firm-specific information reflected in stock prices in international markets.

Corporate Lobbying and CEO Pay

This study examines the agency costs of corporate lobbying by exploring the relation between lobbying and excess CEO compensation. We show that CEOs of firms engaged in lobbying earn significantly greater compensation levels compared to CEOs in non-lobbying firms, after controlling for standard economic determinants of pay. The relation between lobbying and CEO pay increases with the intensity of firms’ lobbying. Although lobbying is positively associated future sales growth, we find no evidence suggesting it culminates in shareholder wealth creation. Additional tests reveal that for a subset of firms with available data, governance attributes mediate the relation between lobbying and firms’ decision to lobby. Lastly, a difference-in-difference, propensity-score matched analysis suggests significant increases in CEO pay levels around firms’ initial lobbying engagements. Overall, we conclude that corporate lobbying introduces agency costs borne by shareholders.