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

75 Pages Posted: 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; Simon Business School, University of Rochester

Lakshmanan Shivakumar

London Business School

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Date Written: November 11, 2011

Abstract

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

Ball, Ray and Jayaraman, Sudarshan and Jayaraman, Sudarshan and Shivakumar, Lakshmanan, Audited Financial Reporting and Voluntary Disclosure as Complements: A Test of the Confirmation Hypothesis (November 11, 2011). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1958054

Ray Ball

University of Chicago - Booth School of Business ( email )

Sudarshan Jayaraman

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States
585-275-3491 (Phone)

Simon Business School, University of Rochester ( email )

Rochester, NY 14627
United States
585-275-3491 (Phone)

Lakshmanan Shivakumar (Contact Author)

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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