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Earnings announcement delays and implications for the auditor-client relationship

Author

Listed:
  • Kimball Chapman

    (Washington University in St. Louis)

  • Michael Drake

    (Brigham Young University)

  • Joseph H. Schroeder

    (Indiana University)

  • Timothy Seidel

    (Brigham Young University)

Abstract

We examine whether delays in the expected release of annual earnings have implications for the future auditor-client relationship. Managers have strong incentives to release earnings on schedule, and auditors play an important role in helping their clients avoid costly earnings announcement delays. We find an increased likelihood of subsequent auditor-client realignments after earnings announcement delays. We further find that clients changing auditors realign with audit firms that better meet their earnings announcement timing demands, without finding evidence of a significant compromise in the reliability of the financial statement numbers in the earnings announcement. Our results help inform regulatory concerns about audit market concentration and how audit firm turnover has the potential to impact the auditor-client dynamic. While it is possible that auditor turnover could lead to a power imbalance where clients gain leverage in the relationship, our results suggest otherwise.

Suggested Citation

  • Kimball Chapman & Michael Drake & Joseph H. Schroeder & Timothy Seidel, 2023. "Earnings announcement delays and implications for the auditor-client relationship," Review of Accounting Studies, Springer, vol. 28(1), pages 45-90, March.
    • Handle: RePEc:spr:reaccs:v:28:y:2023:i:1:d:10.1007_s11142-021-09635-3
    DOI: 10.1007/s11142-021-09635-3
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    Keywords

    M41; M42;

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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