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http://ssrn.com/abstract=1626195
 
 

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Audited Financial Reporting and Voluntary Disclosure as Complements: A Test of the Confirmation Hypothesis


Ray Ball


University of Chicago

Sudarshan Jayaraman


Washington University in Saint Louis - John M. Olin Business School

Lakshmanan Shivakumar


London Business School

June 30, 2011


Abstract:     
We examine the “confirmation” hypothesis, that audited, backward-looking financial outcomes and disclosure of managers’ private forward-looking information are complements, because independent audit disciplines and hence enhances disclosure credibility. Committing to higher audit fees (a measure of the extent of financial outcome verification and thus the accuracy and freedom from manipulation of reported outcomes), is associated with management forecasts that are more frequent, specific, timely and accurate, and receive a larger market reaction. These relations are not driven by litigation risk and are robust to various tests. Private information disclosure and audited financial reporting are complements and cannot be evaluated separately.

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Date posted: June 17, 2010 ; Last revised: November 11, 2011

Suggested Citation

Ball, Ray and Jayaraman, Sudarshan and Shivakumar, Lakshmanan, Audited Financial Reporting and Voluntary Disclosure as Complements: A Test of the Confirmation Hypothesis (June 30, 2011). Available at SSRN: http://ssrn.com/abstract=1626195 or http://dx.doi.org/10.2139/ssrn.1626195

Contact Information

Ray Ball (Contact Author)
University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-5941 (Phone)
773-702-0458 (Fax)
Sudarshan Jayaraman
Washington University in Saint Louis - John M. Olin Business School ( email )
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
Lakshmanan Shivakumar
London Business School ( email )
Regent's Park
London, NW1 4SA
United Kingdom
+44 20 7000 8115 (Phone)
+44 20 7000 8101 (Fax)
HOME PAGE: http://faculty.london.edu/lshivakumar/
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