Audited Financial Reporting and Voluntary Disclosure as Complements: A Test of the Confirmation Hypothesis
75 Pages Posted: 11 Nov 2011
Date Written: November 11, 2011
We examine the 'confirmation' hypothesis that audited financial reporting and disclosure of managers’ private information are complements, because independent verification of outcomes disciplines and hence enhances disclosure credibility. Committing to higher audit fees (a measure of financial statement verification) is associated with management forecasts that are more frequent, specific, timely, accurate and informative to investors. Because private information disclosure and audited financial reporting are complements, their economic roles cannot be evaluated separately. Our evidence cautions against drawing inferences exclusively from market reactions around “announcement periods” because audited financial reporting indirectly affects information released at other times and through other channels.
JEL Classification: M41
Suggested Citation: Suggested Citation