Abstract

http://ssrn.com/abstract=421660
 
 

References (29)



 
 

Citations (14)



 


 



The Role of Auditing in Investor Protection


Paul Newman


University of Texas at Austin - Department of Accounting

Evelyn Patterson


Indiana University - Kelley School of Business - Department of Accounting

Reed Smith


Indiana University - Kelley School of Business - Department of Accounting

July 2003


Abstract:     
Protection of outside investors depends on the detection and punishment of resource diversion by managers and controlling shareholders. We focus on the role played in investor protection by self-interested auditors operating in a competitive audit market. In our setting, auditors represent the mechanism whereby detection of diversion occurs. We show that markets with relatively greater auditor penalties for audit failures and greater insider penalties for detected resource diversion have larger total investment levels, a higher proportion of the firm held by outsiders, higher audit effort, higher audit fees, and higher expected payoffs for both auditors and insiders.

Number of Pages in PDF File: 45

Keywords: investor protection, strategic auditing, insider diversion, insider

JEL Classification: C72, G32, G34, M49

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Date posted: August 10, 2003  

Suggested Citation

Newman, Paul and Patterson, Evelyn and Smith, Reed, The Role of Auditing in Investor Protection (July 2003). Available at SSRN: http://ssrn.com/abstract=421660 or http://dx.doi.org/10.2139/ssrn.421660

Contact Information

Donald Paul Newman (Contact Author)
University of Texas at Austin - Department of Accounting ( email )
Austin, TX 78712
United States
Evelyn Patterson
Indiana University - Kelley School of Business - Department of Accounting ( email )
1309 E. 10th Street
Bloomington, IN 47405
United States
317-278-7843 (Phone)

J. Reed Smith
Indiana University - Kelley School of Business - Department of Accounting ( email )
1309 E. 10th Street
Bloomington, IN 47405
United States
317-274-0867 (Phone)
317-274-3312 (Fax)

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