Third-Party Consequences of Changes in Managerial Fiduciary Duties: The Case of Auditors’ Going Concern Opinions

45 Pages Posted: 25 Jan 2021

See all articles by Liang Tan

Liang Tan

Virginia Polytechnic Institute & State University

Santhosh Ramalingegowda

University of Georgia - Terry College of Business

Yong Yu

University of Texas at Austin

Date Written: January 7, 2021

Abstract

This study examines the effect of managerial fiduciary duties on the likelihood of firms receiving going concern (GC) opinions from their auditors. We exploit an influential 1991 legal ruling that expanded fiduciary duties of corporate directors and officers in favor of creditors for near-insolvent Delaware firms. Our difference-in-differences test reveals an increase in GC opinions following the ruling for near-insolvent Delaware firms. Further tests indicate an increase in Type I audit opinion errors and no change in audit risk after the ruling. Additional analysis shows that after the ruling near-insolvent Delaware firms are less likely to dismiss their auditors following the receipt of a GC report. Overall, our findings are consistent with managers and directors with increased fiduciary duties toward creditors exerting less pressure on auditors and allowing them to reveal more GC opinions. Our results highlight important third-party consequences of changes in managerial fiduciary duties.

Keywords: Credit Lyonnais Ruling, Fiduciary Duties, Going Concern Opinions, Auditors

JEL Classification: G30, K22, M41, M42

Suggested Citation

Tan, Liang and Ramalingegowda, Santhosh and Yu, Yong, Third-Party Consequences of Changes in Managerial Fiduciary Duties: The Case of Auditors’ Going Concern Opinions (January 7, 2021). Available at SSRN: https://ssrn.com/abstract=3761930 or http://dx.doi.org/10.2139/ssrn.3761930

Liang Tan (Contact Author)

Virginia Polytechnic Institute & State University ( email )

Pamplin College of Business
Blacksburg, VA 24061
United States

Santhosh Ramalingegowda

University of Georgia - Terry College of Business ( email )

Brooks Hall
Athens, GA 30602-6254
United States
706-542-3612 (Phone)

Yong Yu

University of Texas at Austin ( email )

1 University Station B6400
Austin, TX 78712
United States
(512)471-6714 (Phone)
(512)471-3904 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
36
Abstract Views
263
PlumX Metrics