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

71 Pages Posted: 17 Jun 2010 Last revised: 11 Nov 2011

See all articles by Ray Ball

Ray Ball

University of Chicago - Booth School of Business

Sudarshan Jayaraman

University of Rochester - Simon Business School

Lakshmanan Shivakumar

London Business School

Multiple version iconThere are 2 versions of this paper

Date Written: 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.

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: https://ssrn.com/abstract=1626195 or http://dx.doi.org/10.2139/ssrn.1626195

Ray Ball (Contact Author)

University of Chicago - Booth School of Business ( email )

Sudarshan Jayaraman

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
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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