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

See all articles by Michael Ettredge

Michael Ettredge

University of Kansas - Accounting and Information Systems Area

Karla M. Zehms

University of Wisconsin - Madison - Department of Accounting and Information Systems

Mary S. Stone

University of Alabama - Culverhouse College of Commerce & Business Administration

Qian Wang

Iowa State University - College of Business

Date Written: October 19, 2010

Abstract

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

Ettredge, Michael L. and Zehms, Karla M. and Stone, Mary S. and Wang, Qian, The Effects of Firm Size, Corporate Governance Quality, and Bad News on Disclosure Compliance (October 19, 2010). Review of Accounting Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=955922

Michael L. Ettredge (Contact Author)

University of Kansas - Accounting and Information Systems Area ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States
785-864-7537 (Phone)
785-864-5328 (Fax)

Karla M. Zehms

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-234-1052 (Phone)
608-265-5031 (Fax)

Mary S. Stone

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Box 870223
School of Accountancy 314 Alston Hall
Tuscaloosa, AL 35487-0223
United States
205-348-2915 (Phone)
205-348-8453 (Fax)

Qian Wang

Iowa State University - College of Business ( email )

Ames, IA 50011-2063
United States

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