Management Going-Concern Disclosures: Impact of Corporate Governance and Auditor Reputation

28 Pages Posted: 23 Oct 2006

See all articles by Jinn-Yang Uang

Jinn-Yang Uang

National Defense University

Richard Taffler

Manchester Business School

David B. Citron

City University London - Sir John Cass Business School

Puliyur Sudarsanam

Cranfield University - School of Management

Abstract

The UK regulatory requirements relating to going-concern disclosures require directors to report on the going-concern status of their firms. Such directors have incentives not to report fairly in the case of financially-distressed firms. We expect effective corporate governance mechanisms will encourage directors to report more truthfully in such situations. This paper tests this proposition explicitly using a large sample of going-concern cases over the period 1994-2000. We find that whereas auditors' going-concern opinions predict the subsequent resolution of going-concern uncertainties directors' going-concern statements convey arbitrary and unhelpful messages to users. However, robust corporate governance structures and high auditor reputation constrain directors to be more truthful in their going-concern disclosures, bringing these more into line with the more credible auditor opinions.

Suggested Citation

Uang, Jinn-Yang and Taffler, Richard J. and Citron, David B. and Sudarsanam, Puliyur Sudi, Management Going-Concern Disclosures: Impact of Corporate Governance and Auditor Reputation. European Financial Management, Vol. 12, No. 5, pp. 789-816, November 2006. Available at SSRN: https://ssrn.com/abstract=939088 or http://dx.doi.org/10.1111/j.1468-036X.2006.00277.x

Jinn-Yang Uang (Contact Author)

National Defense University ( email )

Marshall Hall
300 5th Avenue
Washington, DC 20319-5066
United States

Richard J. Taffler

Manchester Business School ( email )

Crawford House
Oxford Road
Manchester M13 9PL
United Kingdom

David B. Citron

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 207 040 8665 (Phone)
+44 207 040 8881 (Fax)

Puliyur Sudi Sudarsanam

Cranfield University - School of Management ( email )

Bedfordshire, MK43 0AL
United Kingdom

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