Public Oversight and Reporting Credibility: Evidence from the PCAOB Audit Inspection Regime

Public Oversight and Reporting Credibility: Evidence from the PCAOB Audit Inspection Regime

Brandon Gipper, Christian Leuz, Mark Maffett

Series number :

Serial Number: 
453/2015

Date posted :

July 20 2017

Last revised :

December 11 2019
SSRN Share

Keywords

  • regulation • 
  • enforcement • 
  • public oversight • 
  • Auditing • 
  • Earnings response coefficients

This paper studies the impact of public audit oversight on financial reporting credibility.

We analyze changes in market responses to earnings news after public audit oversight is introduced, exploiting that the regime onset depends on fiscal year-ends, auditors, and the rollout of auditor inspections. We find that investors respond more strongly to earnings news following public audit oversight. Corroborating these findings, we find an increase in volume responses to 10-K filings after the new regime. Our results show that public audit oversight can enhance reporting credibility and that this credibility is priced in capital markets.

Authors

Real name:
Brandon Gipper
Real name:
Mark Maffett