Audited Financial Reporting and Voluntary Disclosure: International Evidence on Management Earnings Forecasts

19 Pages Posted: 22 Jun 2018

See all articles by Rubing Liu

Rubing Liu

Guangdong University of Foreign Studies

Xiangting Kong

Center for Accounting, Finance and Institutions/ Business School, Sun Yat-sen University, China

Ziyao San

York University, Schulich School of Business, Students

Albert Tsang

York University - Schulich School of Business

Date Written: July 2018

Abstract

In this paper, we extend prior research on the link between audited financial reporting and voluntary disclosure by examining international differences in the relationship between commitment to higher levels of audit verification of actual financial outcomes and management earnings forecasts (our proxy for voluntary disclosure), using firm‐level data from 30 non‐US countries. Our evidence that commitment to higher levels of audit verification (proxied by the choice of a Big 4 auditor, the amount of audit fees, and excess audit fees) is positively associated with the incidence and frequency of management forecasts, and with stock market reactions to such forecasts, supports the notion that audited financial reporting and voluntary disclosure of managers' private information are complements in countries around the world. We further find that the relation between audited financial reporting and management earnings forecasts is weaker for firms in countries with relatively stronger capital market development or with higher levels of investor protection, suggesting that audited financial reporting plays a more important complementary role in voluntary disclosure in countries with less‐developed institutions. Overall, our findings suggest that firm‐level commitment to better audited financial reporting and the strength of country‐level institutional characteristics play substitute roles in corporate voluntary disclosure decisions.

Keywords: Audit fees, audit quality, audit risk, auditor choice, disclosure

Suggested Citation

Liu, Rubing and Kong, Xiangting and San, Ziyao and Tsang, Albert, Audited Financial Reporting and Voluntary Disclosure: International Evidence on Management Earnings Forecasts (July 2018). International Journal of Auditing, Vol. 22, Issue 2, pp. 249-267, 2018. Available at SSRN: https://ssrn.com/abstract=3200747 or http://dx.doi.org/10.1111/ijau.12118

Rubing Liu (Contact Author)

Guangdong University of Foreign Studies ( email )

Collaborative Innovation Center for Silk Road
Guangzhou
China

Xiangting Kong

Center for Accounting, Finance and Institutions/ Business School, Sun Yat-sen University, China ( email )

Guangzhou, Guangdong
China

Ziyao San

York University, Schulich School of Business, Students ( email )

North York, Ontario
Canada

Albert Tsang

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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