Comparing Self-Regulation and Statutory Regulation: Evidence from the Accounting Profession

Accounting, Organizations and Society, Forthcoming

Posted: 5 Jan 2012

See all articles by Divya Anantharaman

Divya Anantharaman

Rutgers, The State University of New Jersey - Accounting & Information Systems

Date Written: January 5, 2012

Abstract

The accounting profession in the United States recently shifted from self-regulation by peer review to statutory regulation by the Public Company Accounting Oversight Board (PCAOB). Using this shift, I compare outcomes from self-regulation and statutory regulation for the same group of firms. I find that firms choosing their own reviewers, and firms choosing reviewers likely to be connected through prior relationships, tend to receive peer review opinions more favourable than their subsequent PCAOB reports, suggesting that some firms obtained ‘friendly’ reviews in the peer review era. On the other hand, reviewers with relevant industry knowledge are less likely to give such favourable reviews. Further, reviewers from the same geographic area are likely to give peer reviews that are more negative than the subsequent PCAOB reports. Additional analysis suggests that peer reviewers from similar industry or geographic areas bring greater firm-specific expertise to the reviewing process. In the PCAOB regime, I find that firms inspected later tend to receive PCAOB reports more favourable than their peer reviews, suggesting some trends over time in PCAOB reporting. Overall, the findings help in understanding the influences on each approach to regulation, and suggest a nuanced understanding of both approaches as having strengths as well as weaknesses.

Keywords: Self-regulation, peer review, Sarbanes-Oxley Act, Public Company Accounting Oversight Board

Suggested Citation

Anantharaman, Divya, Comparing Self-Regulation and Statutory Regulation: Evidence from the Accounting Profession (January 5, 2012). Accounting, Organizations and Society, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1980311

Divya Anantharaman (Contact Author)

Rutgers, The State University of New Jersey - Accounting & Information Systems ( email )

1 Washington Park
#916
Newark, NJ 07102
United States

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