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Board structure and modified audit opinions: the case of the Portuguese Stock Exchange

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Author Info
Jorge Farinha () (CETE, Faculdade de Economia, Universidade do Porto)
Luis Filipe Viana () (DGCI - Direcção-Geral dos Impostos)
Abstract

Prior research has found evidence that some characteristics of the board of directors influence the quality of accounting information (e.g., Beasley, 1996; Dechow et al., 1996; Klein, 2002a; Xie et al., 2003). In this study we extend the literature by analysing a different dimension of accounting information quality, the probability of a firm receiving a modified audit opinion. Using a sample of companies listed on Euronext Lisbon where firms can publish financial statements not in accordance with GAAP, unlike the current situation in other markets like the US, and 91 firm-year observations for the period 2002-03, we find evidence consistent with the hypotheses that board diligence and independence contribute negatively to the probability of a modified opinion, while board size is not statistically significant. Our results are robust to different specifications and also show that financial health, performance, growth opportunities and the existence of dividend payments are additional factors affecting the likelihood of a modified audit opinion.

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Publisher Info
Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series CETE Discussion Papers with number 0609.

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Length: 61 pages
Date of creation: Oct 2006
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Handle: RePEc:por:cetedp:0609

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Related research
Keywords: auditing modified opinions accounting quality board structure corporate governance non-executive directors

Find related papers by JEL classification:
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
M42 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Auditing

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