جبران خسارت حسابرس، کیفیت افشاء و نقدینگی بازار : شواهدی از بازار سهام

Previous studies on the effects of auditor compensation on disclosure quality have focused on accounting measures, such as earnings management, discretionary accruals, and restatements. In contrast, we investigate the impact of fees paid for audit and non-audit services on a market-based measure of disclosure quality and stock market liquidity. Based on a large sample of NYSE-traded S&P 1500 stocks, we find only weak evidence to support the argument that auditor compensation lowers firm disclosure quality and market liquidity. This finding is robust to alternative measures of bid-ask spreads and asymmetric information costs of trading. In addition, we find some evidence to suggest that the adverse effects of auditor compensation on market liquidity are concentrated in firms with weak corporate governance mechanisms. Our results underscore the need to revisit the rationale and scope of restrictions on non-audit services imposed recently by the Sarbanes-Oxley Act.

Are the fees for audit and non-audit services paid by a firm (i.e., auditor compensation) associated with lower quality accounting information and/or impaired disclosure by the firm, leading to heightened information asymmetry and decreased market liquidity? This would seem to be the supposition behind the Sarbanes-Oxley Act of 2002. The recent collapse of Enron and the irregularities found in its accounting statements have brought to sharp focus the relationship between the client and its auditor. On September 10, 2003, Enron’s former treasurer, Ben Glisan, Jr., entered a guilty plea to charges that he conspired to “manipulate artificially Enron’s financial statements”.3 More recently, Andrew Fastow, Enron’s former Chief Financial Officer, admitted that he and others at Enron “fraudulently manipulated Enron’s publicly reported financial results. Our purpose was to mislead investors and others about the true financial position” of Enron.4 The effects on Enron’s auditor, Arthur Anderson, were devastating, forcing the venerable accounting firm to near bankruptcy. One recurring theme in the popular business press is that the auditor–audited firm relationship between Arthur Anderson and Enron was compromised by a conflict of interest and that this conflict of interest was at the heart of Enron’s ability to manipulate its financial accounting statements and the investing public. This theme was echoed in the provisions of Sarbanes-Oxley Act of 2002. One source of the presupposed conflict of interest is the non-audit (e.g., consulting) services that Anderson, the auditor, provided Enron, the client. For example, in 2000, The Investor Responsibility Research Center (IRRC) reported that Enron paid $25,000,000 to Anderson for consulting services and $27,000,000 for audit-related services. Clearly, the fees paid for non-audit services are significant and comparable to the fees paid for auditing services and thus potentially give rise to a conflict of interest. Further, the total fees paid by Enron to Anderson illustrate the significant economic importance of Enron as a client of Anderson. In fact, the IRRC report indicates that for the firms in the S&P 1500 index with revenues greater than $10 million the average proportion of fees paid to a firm’s auditor for performance of non-audit services to total audit fees in 2000 is 72%. The Securities and Exchange Commission (SEC) mandated the release of this information in all audited financial statements released after February 5, 2001. In a summary of the final ruling, the SEC stated it was “concerned about non-audit services because of the overall economic incentives they create and because of the interdependence that develops between the auditor and the audit client in the course of the non-audit relationship”. Following the Enron and WorldCom accounting scandals in 2001–2002, the Sarbanes-Oxley Act of 2002 (House Resolution 3763) was signed into law. Title II of the Act deals entirely with the subject of auditor independence. Provisions of the law severely restrict the type of services that an auditor can provide its client outside the auditing practice without prior approval of its Audit Committee. Specifically, Section 201 of Title II of the law, entitled “Services Outside The Scope Of Practice Of Auditors: Prohibited Activities,” states it shall be “unlawful” for a registered public accounting firm to provide any non-audit service to an issuer contemporaneously with the audit, including: (1) bookkeeping or other services related to the accounting records or financial statements of the audit client; (2) financial information systems design and implementation; (3) appraisal or valuation services, fairness opinions, or contribution-in-kind reports; (4) actuarial services; (5) internal audit outsourcing services; (6) management functions or human resources; (7) broker or dealer, investment adviser, or investment banking services; (8) legal services and expert services unrelated to the audit; (9) any other service that the Board determines, by regulation, is impermissible. The law is based on the premise that the auditor–client relationship is impaired by the provision of non-audit services. While the Enron and WorldCom scandals are significant events, we are left wondering if the Sarbanes-Oxley Act constitutes a significant step in the direction of improving auditor independence or if it represents a potential over-reaction to the events. Recent empirical studies seek to shed light on the subject. Frankel et al. (2002) investigate whether non-audit fees are associated with earnings quality and more aggressive accounting on the part of the audited firm. They find that the fees that firms pay for non-audit related services relative to total fees paid is positively associated with earnings management and the level of discretionary accruals. They also find a negative wealth effect associated with the release of non-audit fee information in 2001 as was required by the SEC Final Ruling S7-13-00. In direct contrast, Chung and Kallupur (2003) find no significant relationship between non-audit fees (scaled by audit firm revenue) and abnormal accruals. Similarly, Ashbaugh et al. (2003) reexamine the issues and find no relationship between the total fees (e.g., audit and non-audit) paid and the level of discretionary accruals and earnings surprises. They suggest that total fees rather than the ratio of non-audit fees to total fees better captures the economic relationship between the firm and its auditor. They further suggest there is no evidence in their study to support the hypothesis that the economic bond between the auditor and its client compromised auditor independence and disclosure quality. Larker and Richardson (2004) find a positive association between non-audit fees and discretionary accruals; however, the association is present primarily in smaller firms with lower institutional holdings and greater insider holdings. They surmise that the threat to auditor independence from auditor compensation is greatest for small firms with weak corporate governance structures. Chung and Kallupur (2003), however, do not find evidence to support this relationship in a subset of their sample characterized by weak corporate governance. Kinney et al. (2004) look at the issue of auditor independence and non-audit fees using restatements of previously issued accounting statements as an indication of lower quality accounting information. They find a significant positive association between restatements and the provision of “unspecified non-audit” services. They do not, however, find a significant association between restatements and consulting fees for information systems nor internal audit services. Interestingly, they do find a significant negative association between fees for tax services and restatements concentrated primarily in large firms. In sum, the empirical evidence on the impact of audit compensation on auditor independence using accounting based measures is mixed. We use two sets of market-based measures to test the same issues explored in Frankel et al., 2002, Chung and Kallupur, 2003 and Ashbaugh et al., 2003, and Kinney et al. (2004). The first is the Kim and Verrecchia (2001) measure of disclosure quality, and the second set consists of alternative measures of market liquidity that are widely used in the market microstructure literature. While the existing research in the accounting literature focuses on the impact of the auditor–audited firm relationship on the quality of accounting information (e.g., discretionary accruals, earnings management, restatements), we focus on the economic consequences of the auditor–client economic bond. Specifically, we analyze the relation between the fees for audit and non-audit services and measures of firm disclosure quality derived from changes in stock price and volume, adverse selection, and market liquidity. By focusing on the potential stock market impact of the loss of auditor independence (i.e., lower firm disclosure quality, heightened adverse selection, and reduced liquidity of trading), we add to the existing literature in the area of auditor fees and auditor independence. We believe it is important to complement the accounting analysis with a broader financial analysis of the consequences of auditor compensation on asymmetric information and liquidity. This is especially true given the mixed evidence of existing empirical studies using accounting measures of disclosure quality. Further, our paper can be viewed as an empirical test for the economic rationale of Section 201 of the Sarbanes-Oxley Act of 2003. Admittedly, the market-based measures we rely on are indirect estimates of the causality from non-audit services to disclosure quality and then to market liquidity. Nonetheless, we believe the market-based measures are better than pure accounting variables in capturing the true economic effects of non-audit services.

We investigate the economic impact of auditor compensation on disclosure quality and market liquidity. Contrary to the general predictions of some theoretical models, popular belief, and government regulation, we find weak and inconsistent evidence to suggest that greater audit and non-audit fees are associated with lower overall disclosure quality, greater adverse selectionand decreased liquidity. Specifically, we find a positive relationship between auditor compensation scaled by sales revenue with relative effective spread and the Glosten–Harris measure of the adverse selection cost of trading after controlling for other determinants of market liquidity. However, this finding is sensitive to alternative measures of liquidity as well as ordinary least squares and simultaneous equations analysis. Overall, our research provides only weak support for the basic premise for the more restrictive provisions of the Sar- banes-Oxley Act of 2002 with respect to non-audit services. One explanation for our findings is that the auditor is constrained by the risk of litigation and reputational damage stemming from poor audit quality as suggested by DeAngelo (1981) or that the audited firm may supplement its financial state- ments with other disclosure activities in an attempt to self-regulate the liquidity impact of auditor compensation on the transparency of their audited financial statements. Our findings help address the apparent contradiction in the literature be- tween the findings of Ashbaugh et al. (2003) and those of Frankel et al. (2002) and Chung and Kallupur (2003) on the impact of auditor compensation on auditor independence. In contrast to their work on the accounting conse- quences of auditor compensation (i.e., the ability of the firm to manipulate its accounting data and reports in a certain dimension (e.g., discretionary accruals, managing earnings)), we focus on the economic effects as reflected in market-based measures of disclosure quality and market liquidity. We find weak and inconsistent evidence to suggest that the fees paid by firms to its audi- tor are associated with heightened adverse selection and higher transaction costs. Further, we find some evidence to support the findings of Larker and Richardson (2004) that suggests the potential for auditor compensation to compromise accounting quality and thus liquidity is greater in the presence of weaker corporate governance mechanisms.