Auditor Independence in a Private Firm and Low Litigation Risk Setting
58 Pages Posted: 21 Nov 2008 Last revised: 6 Jul 2009
There are 2 versions of this paper
Auditor Independence in a Private Firm and Low Litigation Risk Setting
Auditor Independence in a Private Firm and Low Litigation Risk Setting
Date Written: July 6, 2009
Abstract
We examine the issue of auditor independence in a unique setting. Specifically, we test for auditor independence impairment among (1) private client firms, for which the risk of auditor reputation loss is lower than for publicly traded firms, and (2) in a low litigation environment (i.e., Norway) that further reduces the expected costs to the auditor associated with independence impairment. We have thus chosen a setting that gives independence impairment its best chance of being detected if it exists. Using a large sample of private Norwegian firms, we analyze whether auditors who receive higher fees are less likely to issue modified opinions. Despite the low litigation risk and the reduced reputation risk, our empirical results provide no evidence that auditors compromise their independence through fee dependence. These results are robust to controlling for the expected portion of fees, to different sample specifications, to the use of both levels and changes specifications, and to a number of sensitivity analyses.
Keywords: Auditing, auditor independence, private firms, litigation risk, reputation, accounting, professional ethics
JEL Classification: M49, M47, G34, G38, K22
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Does the Stock Market Harm Investment Incentives?
By John Asker, Joan Farre-mensa, ...
-
Comparing the Investment Behavior of Public and Private Firms
By John Asker, Joan Farre-mensa, ...
-
Does Public Ownership of Equity Improve Earnings Quality?
By Dan Givoly, Carla Hayn, ...
-
Corporate Investment and Stock Market Listing: A Puzzle?
By John Asker, Joan Farre-mensa, ...
-
Financial Reporting Quality and Investment Efficiency of Private Firms in Emerging Markets
By Feng Chen, Ole-kristian Hope, ...
-
Financial Reporting Quality and Investment Efficiency of Private Firms in Emerging Markets
By Feng Chen, Ole-kristian Hope, ...
-
Financial Credibility, Ownership, and Financing Constraints in Private Firms
By Ole-kristian Hope, Wayne B. Thomas, ...
-
Earnings Quality and Ownership Structure: The Role of Private Equity Sponsors