Public Audit Oversight and Reporting Credibility: Evidence from the PCAOB Inspection Regime

95 Pages Posted: 8 Sep 2015 Last revised: 9 Oct 2015

See all articles by Brandon Gipper

Brandon Gipper

Stanford University Graduate School of Business

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); University of Pennsylvania - Wharton Financial Institutions Center; CESifo Research Network

Mark G. Maffett

University of Chicago - Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: September 2015

Abstract

This paper examines how audit oversight by a public-sector regulator affects investors’ assessments of reporting credibility. We analyze whether market responses to unexpected earnings releases increase following the introduction of the Public Company Accounting Oversight Board (PCAOB), as predicted by theory if the new regime enhances reporting credibility. To identify the effects, we use a difference-in-differences design that exploits the staggered introduction of the inspection regime, which affects firms at different points in time depending on their fiscal year-ends, auditors, and the timing of PCAOB inspections. We find that market responses to unexpected earnings increase significantly following the introduction of the PCAOB inspection regime. Corroborating these findings, we also find an increase in abnormal volume responses to firms’ 10-K filings after the new regime is in place. Overall, our results are consistent with public audit oversight increasing the credibility of financial reporting.

Suggested Citation

Gipper, Brandon and Leuz, Christian and Maffett, Mark G., Public Audit Oversight and Reporting Credibility: Evidence from the PCAOB Inspection Regime (September 2015). NBER Working Paper No. w21530. Available at SSRN: https://ssrn.com/abstract=2656933

Brandon Gipper (Contact Author)

Stanford University Graduate School of Business ( email )

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Christian Leuz

University of Chicago - Booth School of Business ( email )

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HOME PAGE: http://faculty.chicagobooth.edu/christian.leuz/

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European Corporate Governance Institute (ECGI)

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Center for Financial Studies (CFS) ( email )

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University of Pennsylvania - Wharton Financial Institutions Center

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CESifo Research Network

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Mark G. Maffett

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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