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Audit contracts and reputation

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Author Info
Yolanda Portilla ()

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Abstract

This paper characterizes the contractual relationship between an external auditor and a manager of a client firm when the incentives for both agents are implicit as in the career concerns framework. The main result is that the earning management and the audit effort are decreasing over time because the incentives to build a reputation also decline for both agents in spite of a managers first mover advantage. This suggests that the audit effort should be higher when the auditor is an emerging firm and the future employment opportunities for the client firm´s manager are larger.

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File URL: http://e-archivo.uc3m.es/dspace/bitstream/10016/3776/1/we091308.pdf
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Publisher Info
Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we091308.

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Date of creation: Dec 2008
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Handle: RePEc:cte:werepe:we091308

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Related research
Keywords: Contract theory; Career concerns; Reputation; Auditing;

Find related papers by JEL classification:
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information

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This page was last updated on 2009-11-26.

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