Audit demand and monitoring mechanisms: evidence from SEC comment letters and short sellers

Purpose The paper aims to explore the impact of two types of monitoring mechanisms, namely, Securities and Exchange Commission (SEC) comment letters (CLs) and short sellers, on management’s demand for audit quality.

Design/methodology/approach

Using information on the short interest positions and a panel data of SEC CLs between 2005 and 2015, this study applies logit regression model to estimate the likelihood of hiring Big 4 and industry expert audit firm. This study also applies an ordinary least squares regression technique to estimate audit fees.

Findings Consistent with disclosure and agency theories, results from empirical analyses provide that management demands higher quality audits measured by higher audit fees, and higher likelihood to hire Big 4 and industry expert audit firm. However, this study finds that the effect varies depending on the specific monitoring mechanisms. Additionally, when both monitoring mechanisms are in place, the SEC CLs drive the overall direction of the demand for audit quality when audit demand is captured by propensity to hire Big 4/industry expert audit firm.

Research limitations/implications

This study provides researchers with enhanced understanding of the factors having effect on the demand side for audit quality. Furthermore, it adds to the stream of literature on economic consequences of SEC CLs and short selling.

Originality/value

To the best of authors’ knowledge, this is the first comprehensive study to document the effect of two types of monitoring mechanisms, namely, SEC CLs and short selling, on the demand for audit quality.

The version of record is available at https://doi.org/10.1108/maj-09-2020-2836. The full citation is as follows: [Audit demand and monitoring mechanisms: evidence from SEC comment letters and short sellers. Managerial Auditing Journal 37, 6 p700-720 (2022)]. 'This author accepted manuscript is deposited under a Creative Commons Attribution Non-commercial 4.0 International (CC BY-NC) licence. This means that anyone may distribute, adapt, and build upon the work for non-commercial purposes, subject to full attribution. If you wish to use this manuscript for commercial purposes, please contact permissions@emerald.com'

Files

Metadata

Work Title Audit demand and monitoring mechanisms: evidence from SEC comment letters and short sellers
Access
Open Access
Creators
  1. Justyna Skomra
  2. Pervaiz Alam
  3. Piotr Antoni Skomra
Keyword
  1. Audit quality
  2. SEC comment letters
  3. Short sellers
License CC BY-NC 4.0 (Attribution-NonCommercial)
Work Type Article
Publisher
  1. Emerald
Publication Date May 31, 2022
Publisher Identifier (DOI)
  1. 10.1108/maj-09-2020-2836
Source
  1. Managerial Auditing Journal
Deposited August 29, 2022

Versions

Analytics

Collections

This resource is currently not in any collection.

Work History

Version 1
published

  • Created
  • Added FINAL_FULL VERSION-1.pdf
  • Added Creator Justyna Skomra
  • Added Creator Pervaiz Alam
  • Added Creator Piotr Antoni Skomra
  • Published
  • Updated Description Show Changes
    Description
    • <jats:sec>
    • <jats:title content-type="abstract-subheading">Purpose</jats:title>
    • <jats:p>The paper aims to explore the impact of two types of monitoring mechanisms, namely, Securities and Exchange Commission (SEC) comment letters (CLs) and short sellers, on management’s demand for audit quality.</jats:p>
    • </jats:sec>
    • <jats:sec>
    • <jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title>
    • <jats:p>Using information on the short interest positions and a panel data of SEC CLs between 2005 and 2015, this study applies logit regression model to estimate the likelihood of hiring Big 4 and industry expert audit firm. This study also applies an ordinary least squares regression technique to estimate audit fees.</jats:p>
    • </jats:sec>
    • <jats:sec>
    • <jats:title content-type="abstract-subheading">Findings</jats:title>
    • <jats:p>Consistent with disclosure and agency theories, results from empirical analyses provide that management demands higher quality audits measured by higher audit fees, and higher likelihood to hire Big 4 and industry expert audit firm. However, this study finds that the effect varies depending on the specific monitoring mechanisms. Additionally, when both monitoring mechanisms are in place, the SEC CLs drive the overall direction of the demand for audit quality when audit demand is captured by propensity to hire Big 4/industry expert audit firm.</jats:p>
    • </jats:sec>
    • <jats:sec>
    • <jats:title content-type="abstract-subheading">Research limitations/implications</jats:title>
    • <jats:p>This study provides researchers with enhanced understanding of the factors having effect on the demand side for audit quality. Furthermore, it adds to the stream of literature on economic consequences of SEC CLs and short selling.</jats:p>
    • </jats:sec>
    • <jats:sec>
    • <jats:title content-type="abstract-subheading">Originality/value</jats:title>
    • <jats:p>To the best of authors’ knowledge, this is the first comprehensive study to document the effect of two types of monitoring mechanisms, namely, SEC CLs and short selling, on the demand for audit quality.</jats:p>
    • </jats:sec>
    • <jats:title content-type="abstract-subheading">Purpose</jats:title>
    • <jats:p>The paper aims to explore the impact of two types of monitoring mechanisms, namely, Securities and Exchange Commission (SEC) comment letters (CLs) and short sellers, on management’s demand for audit quality.</jats:p>
    • <jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title>
    • <jats:p>Using information on the short interest positions and a panel data of SEC CLs between 2005 and 2015, this study applies logit regression model to estimate the likelihood of hiring Big 4 and industry expert audit firm. This study also applies an ordinary least squares regression technique to estimate audit fees.</jats:p>
    • <jats:title content-type="abstract-subheading">Findings</jats:title>
    • <jats:p>Consistent with disclosure and agency theories, results from empirical analyses provide that management demands higher quality audits measured by higher audit fees, and higher likelihood to hire Big 4 and industry expert audit firm. However, this study finds that the effect varies depending on the specific monitoring mechanisms. Additionally, when both monitoring mechanisms are in place, the SEC CLs drive the overall direction of the demand for audit quality when audit demand is captured by propensity to hire Big 4/industry expert audit firm.</jats:p>
    • <jats:title content-type="abstract-subheading">Research limitations/implications</jats:title>
    • <jats:p>This study provides researchers with enhanced understanding of the factors having effect on the demand side for audit quality. Furthermore, it adds to the stream of literature on economic consequences of SEC CLs and short selling.</jats:p>
    • <jats:title content-type="abstract-subheading">Originality/value</jats:title>
    • <jats:p>To the best of authors’ knowledge, this is the first comprehensive study to document the effect of two types of monitoring mechanisms, namely, SEC CLs and short selling, on the demand for audit quality.
  • Updated Description Show Changes
    Description
    • <jats:title content-type="abstract-subheading">Purpose</jats:title>
    • <jats:p>The paper aims to explore the impact of two types of monitoring mechanisms, namely, Securities and Exchange Commission (SEC) comment letters (CLs) and short sellers, on management’s demand for audit quality.</jats:p>
    • The paper aims to explore the impact of two types of monitoring mechanisms, namely, Securities and Exchange Commission (SEC) comment letters (CLs) and short sellers, on management’s demand for audit quality.</jats:p>
    • <jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title>
    • <jats:p>Using information on the short interest positions and a panel data of SEC CLs between 2005 and 2015, this study applies logit regression model to estimate the likelihood of hiring Big 4 and industry expert audit firm. This study also applies an ordinary least squares regression technique to estimate audit fees.</jats:p>
    • <jats:title content-type="abstract-subheading">Findings</jats:title>
    • <jats:p>Consistent with disclosure and agency theories, results from empirical analyses provide that management demands higher quality audits measured by higher audit fees, and higher likelihood to hire Big 4 and industry expert audit firm. However, this study finds that the effect varies depending on the specific monitoring mechanisms. Additionally, when both monitoring mechanisms are in place, the SEC CLs drive the overall direction of the demand for audit quality when audit demand is captured by propensity to hire Big 4/industry expert audit firm.</jats:p>
    • <jats:title content-type="abstract-subheading">Research limitations/implications</jats:title>
    • <jats:p>This study provides researchers with enhanced understanding of the factors having effect on the demand side for audit quality. Furthermore, it adds to the stream of literature on economic consequences of SEC CLs and short selling.</jats:p>
    • <jats:title content-type="abstract-subheading">Originality/value</jats:title>
    • <jats:p>To the best of authors’ knowledge, this is the first comprehensive study to document the effect of two types of monitoring mechanisms, namely, SEC CLs and short selling, on the demand for audit quality.
  • Updated Description Show Changes
    Description
    • <jats:title content-type="abstract-subheading">Purpose</jats:title>
    • <jats:title content-type="abstract-subheading">Purpose
    • The paper aims to explore the impact of two types of monitoring mechanisms, namely, Securities and Exchange Commission (SEC) comment letters (CLs) and short sellers, on management’s demand for audit quality.</jats:p>
    • <jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title>
    • <jats:p>Using information on the short interest positions and a panel data of SEC CLs between 2005 and 2015, this study applies logit regression model to estimate the likelihood of hiring Big 4 and industry expert audit firm. This study also applies an ordinary least squares regression technique to estimate audit fees.</jats:p>
    • <jats:title content-type="abstract-subheading">Findings</jats:title>
    • <jats:p>Consistent with disclosure and agency theories, results from empirical analyses provide that management demands higher quality audits measured by higher audit fees, and higher likelihood to hire Big 4 and industry expert audit firm. However, this study finds that the effect varies depending on the specific monitoring mechanisms. Additionally, when both monitoring mechanisms are in place, the SEC CLs drive the overall direction of the demand for audit quality when audit demand is captured by propensity to hire Big 4/industry expert audit firm.</jats:p>
    • <jats:title content-type="abstract-subheading">Research limitations/implications</jats:title>
    • <jats:p>This study provides researchers with enhanced understanding of the factors having effect on the demand side for audit quality. Furthermore, it adds to the stream of literature on economic consequences of SEC CLs and short selling.</jats:p>
    • <jats:title content-type="abstract-subheading">Originality/value</jats:title>
    • <jats:p>To the best of authors’ knowledge, this is the first comprehensive study to document the effect of two types of monitoring mechanisms, namely, SEC CLs and short selling, on the demand for audit quality.
  • Updated Description Show Changes
    Description
    • <jats:title content-type="abstract-subheading">Purpose
    • The paper aims to explore the impact of two types of monitoring mechanisms, namely, Securities and Exchange Commission (SEC) comment letters (CLs) and short sellers, on management’s demand for audit quality.</jats:p>
    • The paper aims to explore the impact of two types of monitoring mechanisms, namely, Securities and Exchange Commission (SEC) comment letters (CLs) and short sellers, on management’s demand for audit quality.
    • <jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title>
    • <jats:p>Using information on the short interest positions and a panel data of SEC CLs between 2005 and 2015, this study applies logit regression model to estimate the likelihood of hiring Big 4 and industry expert audit firm. This study also applies an ordinary least squares regression technique to estimate audit fees.</jats:p>
    • Using information on the short interest positions and a panel data of SEC CLs between 2005 and 2015, this study applies logit regression model to estimate the likelihood of hiring Big 4 and industry expert audit firm. This study also applies an ordinary least squares regression technique to estimate audit fees.</jats:p>
    • <jats:title content-type="abstract-subheading">Findings</jats:title>
    • <jats:p>Consistent with disclosure and agency theories, results from empirical analyses provide that management demands higher quality audits measured by higher audit fees, and higher likelihood to hire Big 4 and industry expert audit firm. However, this study finds that the effect varies depending on the specific monitoring mechanisms. Additionally, when both monitoring mechanisms are in place, the SEC CLs drive the overall direction of the demand for audit quality when audit demand is captured by propensity to hire Big 4/industry expert audit firm.</jats:p>
    • <jats:title content-type="abstract-subheading">Research limitations/implications</jats:title>
    • <jats:p>This study provides researchers with enhanced understanding of the factors having effect on the demand side for audit quality. Furthermore, it adds to the stream of literature on economic consequences of SEC CLs and short selling.</jats:p>
    • <jats:title content-type="abstract-subheading">Originality/value</jats:title>
    • <jats:p>To the best of authors’ knowledge, this is the first comprehensive study to document the effect of two types of monitoring mechanisms, namely, SEC CLs and short selling, on the demand for audit quality.
  • Updated Description Show Changes
    Description
    • <jats:title content-type="abstract-subheading">Purpose
    • The paper aims to explore the impact of two types of monitoring mechanisms, namely, Securities and Exchange Commission (SEC) comment letters (CLs) and short sellers, on management’s demand for audit quality.
    • <jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title>
    • Using information on the short interest positions and a panel data of SEC CLs between 2005 and 2015, this study applies logit regression model to estimate the likelihood of hiring Big 4 and industry expert audit firm. This study also applies an ordinary least squares regression technique to estimate audit fees.</jats:p>
    • <jats:title content-type="abstract-subheading">Design/methodology/approach
    • Using information on the short interest positions and a panel data of SEC CLs between 2005 and 2015, this study applies logit regression model to estimate the likelihood of hiring Big 4 and industry expert audit firm. This study also applies an ordinary least squares regression technique to estimate audit fees.
    • <jats:title content-type="abstract-subheading">Findings</jats:title>
    • <jats:p>Consistent with disclosure and agency theories, results from empirical analyses provide that management demands higher quality audits measured by higher audit fees, and higher likelihood to hire Big 4 and industry expert audit firm. However, this study finds that the effect varies depending on the specific monitoring mechanisms. Additionally, when both monitoring mechanisms are in place, the SEC CLs drive the overall direction of the demand for audit quality when audit demand is captured by propensity to hire Big 4/industry expert audit firm.</jats:p>
    • <jats:title content-type="abstract-subheading">Findings
    • Consistent with disclosure and agency theories, results from empirical analyses provide that management demands higher quality audits measured by higher audit fees, and higher likelihood to hire Big 4 and industry expert audit firm. However, this study finds that the effect varies depending on the specific monitoring mechanisms. Additionally, when both monitoring mechanisms are in place, the SEC CLs drive the overall direction of the demand for audit quality when audit demand is captured by propensity to hire Big 4/industry expert audit firm.</jats:p>
    • <jats:title content-type="abstract-subheading">Research limitations/implications</jats:title>
    • <jats:p>This study provides researchers with enhanced understanding of the factors having effect on the demand side for audit quality. Furthermore, it adds to the stream of literature on economic consequences of SEC CLs and short selling.</jats:p>
    • <jats:title content-type="abstract-subheading">Originality/value</jats:title>
    • <jats:p>To the best of authors’ knowledge, this is the first comprehensive study to document the effect of two types of monitoring mechanisms, namely, SEC CLs and short selling, on the demand for audit quality.
  • Updated Description Show Changes
    Description
    • <jats:title content-type="abstract-subheading">Purpose
    • <jats:title content-type="abstract-subheading">
    • Purpose
    • The paper aims to explore the impact of two types of monitoring mechanisms, namely, Securities and Exchange Commission (SEC) comment letters (CLs) and short sellers, on management’s demand for audit quality.
    • <jats:title content-type="abstract-subheading">Design/methodology/approach
    • Using information on the short interest positions and a panel data of SEC CLs between 2005 and 2015, this study applies logit regression model to estimate the likelihood of hiring Big 4 and industry expert audit firm. This study also applies an ordinary least squares regression technique to estimate audit fees.
    • <jats:title content-type="abstract-subheading">Findings
    • <jats:title content-type="abstract-subheading">
    • Findings
    • Consistent with disclosure and agency theories, results from empirical analyses provide that management demands higher quality audits measured by higher audit fees, and higher likelihood to hire Big 4 and industry expert audit firm. However, this study finds that the effect varies depending on the specific monitoring mechanisms. Additionally, when both monitoring mechanisms are in place, the SEC CLs drive the overall direction of the demand for audit quality when audit demand is captured by propensity to hire Big 4/industry expert audit firm.</jats:p>
    • <jats:title content-type="abstract-subheading">Research limitations/implications</jats:title>
    • <jats:p>This study provides researchers with enhanced understanding of the factors having effect on the demand side for audit quality. Furthermore, it adds to the stream of literature on economic consequences of SEC CLs and short selling.</jats:p>
    • This study provides researchers with enhanced understanding of the factors having effect on the demand side for audit quality. Furthermore, it adds to the stream of literature on economic consequences of SEC CLs and short selling.
    • <jats:title content-type="abstract-subheading">Originality/value</jats:title>
    • <jats:p>To the best of authors’ knowledge, this is the first comprehensive study to document the effect of two types of monitoring mechanisms, namely, SEC CLs and short selling, on the demand for audit quality.
    • To the best of authors’ knowledge, this is the first comprehensive study to document the effect of two types of monitoring mechanisms, namely, SEC CLs and short selling, on the demand for audit quality.
  • Updated Description Show Changes
    Description
    • <jats:title content-type="abstract-subheading">
    • Purpose
    • The paper aims to explore the impact of two types of monitoring mechanisms, namely, Securities and Exchange Commission (SEC) comment letters (CLs) and short sellers, on management’s demand for audit quality.
    • <jats:title content-type="abstract-subheading">Design/methodology/approach
    • Using information on the short interest positions and a panel data of SEC CLs between 2005 and 2015, this study applies logit regression model to estimate the likelihood of hiring Big 4 and industry expert audit firm. This study also applies an ordinary least squares regression technique to estimate audit fees.
    • <jats:title content-type="abstract-subheading">
    • Findings
    • Consistent with disclosure and agency theories, results from empirical analyses provide that management demands higher quality audits measured by higher audit fees, and higher likelihood to hire Big 4 and industry expert audit firm. However, this study finds that the effect varies depending on the specific monitoring mechanisms. Additionally, when both monitoring mechanisms are in place, the SEC CLs drive the overall direction of the demand for audit quality when audit demand is captured by propensity to hire Big 4/industry expert audit firm.</jats:p>
    • Consistent with disclosure and agency theories, results from empirical analyses provide that management demands higher quality audits measured by higher audit fees, and higher likelihood to hire Big 4 and industry expert audit firm. However, this study finds that the effect varies depending on the specific monitoring mechanisms. Additionally, when both monitoring mechanisms are in place, the SEC CLs drive the overall direction of the demand for audit quality when audit demand is captured by propensity to hire Big 4/industry expert audit firm.
    • <jats:title content-type="abstract-subheading">Research limitations/implications</jats:title>
    • <jats:title content-type="abstract-subheading">Research limitations/implications
    • This study provides researchers with enhanced understanding of the factors having effect on the demand side for audit quality. Furthermore, it adds to the stream of literature on economic consequences of SEC CLs and short selling.
    • <jats:title content-type="abstract-subheading">Originality/value</jats:title>
    • <jats:title content-type="abstract-subheading">Originality/value
    • To the best of authors’ knowledge, this is the first comprehensive study to document the effect of two types of monitoring mechanisms, namely, SEC CLs and short selling, on the demand for audit quality.
  • Updated Work Title, Keyword Show Changes
    Work Title
    • Audit Demand and Monitoring Mechanisms: Evidence from SEC Comment Letters and Short Sellers
    • Audit demand and monitoring mechanisms: evidence from SEC comment letters and short sellers
    Keyword
    • Audit quality, SEC comment letters, Short sellers
  • Updated