The Effects of Firm Size, Corporate Governance Quality, and Bad News on Disclosure Compliance
38 Pages Posted: 14 Jan 2007 Last revised: 21 Oct 2010
Date Written: October 19, 2010
Motivated by calls for increased compliance, size-based regulation, and continued exemption of small firms from internal control reporting requirements, we assess the incremental effects of firm size, corporate governance quality, and bad news on disclosure compliance. We examine compliance with the disclosure requirements of an SEC-mandated filing that requires no computations or complex judgments, but is non-routine and may reveal value-decreasing information (i.e., bad news) that otherwise would not become public. The disclosures studied are those that firms provide in Form 8-K Item 4 when changing external auditors. We find that non-compliant firms have lower quality corporate governance and less need for external financing, but are not smaller than compliant control firms. Additional analyses indicate that compliance is negatively associated with bad news.
Keywords: Auditor change, compliance, mandatory disclosure, SEC staff comment letters, size-based regulation
JEL Classification: M41, M45, M49, G34, G38
Suggested Citation: Suggested Citation