IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

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

  • Jorge Farinha

    ()

    (CETE, Faculdade de Economia, Universidade do Porto)

  • Luis Filipe Viana

    ()

    (DGCI - Direcção-Geral dos Impostos)

Registered author(s):

    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.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.fep.up.pt/investigacao/cete/papers/dp0609.pdf
    Download Restriction: no

    Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series CEF.UP Working Papers with number 0609.

    as
    in new window

    Length: 61 pages
    Date of creation: Oct 2006
    Date of revision:
    Handle: RePEc:por:cetedp:0609
    Contact details of provider: Postal: Rua Dr. Roberto Frias, 4200 PORTO
    Phone: 351-22-5571100
    Fax: 351-22-5505050
    Web page: http://www.fep.up.pt/
    Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Park, Yun W. & Shin, Hyun-Han, 2004. "Board composition and earnings management in Canada," Journal of Corporate Finance, Elsevier, vol. 10(3), pages 431-457, June.
    2. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    3. Healy, Paul M., 1985. "The effect of bonus schemes on accounting decisions," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 85-107, April.
    4. Fields, Thomas D. & Lys, Thomas Z. & Vincent, Linda, 2001. "Empirical research on accounting choice," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 255-307, September.
    5. Kothari, S.P. & Leone, Andrew J. & Wasley, Charles E., 2005. "Performance matched discretionary accrual measures," Journal of Accounting and Economics, Elsevier, vol. 39(1), pages 163-197, February.
    6. Holthausen, Robert W. & Leftwich, Richard W., 1983. "The economic consequences of accounting choice implications of costly contracting and monitoring," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 77-117, April.
    7. McNichols, Maureen F., 2000. "Research design issues in earnings management studies," Journal of Accounting and Public Policy, Elsevier, vol. 19(4-5), pages 313-345.
    8. Dechow, Patricia M., 1994. "Accounting earnings and cash flows as measures of firm performance : The role of accounting accruals," Journal of Accounting and Economics, Elsevier, vol. 18(1), pages 3-42, July.
    9. Holthausen, Robert W. & Larcker, David F. & Sloan, Richard G., 1995. "Annual bonus schemes and the manipulation of earnings," Journal of Accounting and Economics, Elsevier, vol. 19(1), pages 29-74, February.
    10. Siew Hong Teoh & Ivo Welch & T.J. Wong, 1998. "Earnings Management and the Long-Run Market Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 53(6), pages 1935-1974, December.
    11. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    12. Vafeas, Nikos, 1999. "Board meeting frequency and firm performance," Journal of Financial Economics, Elsevier, vol. 53(1), pages 113-142, July.
    13. Gaver, Jennifer J. & Gaver, Kenneth M. & Austin, Jeffrey R., 1995. "Additional evidence on bonus plans and income management," Journal of Accounting and Economics, Elsevier, vol. 19(1), pages 3-28, February.
    14. Murphy, Kevin J., 2003. "Stock-based pay in new economy firms," Journal of Accounting and Economics, Elsevier, vol. 34(1-3), pages 129-147, January.
    15. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June.
    16. Perry, Susan E. & Williams, Thomas H., 1994. "Earnings management preceding management buyout offers," Journal of Accounting and Economics, Elsevier, vol. 18(2), pages 157-179, September.
    17. Degeorge, François & Patel, U & Zeckhauser, Richard, 1998. "Earnings Management to Exceed Thresholds," CEPR Discussion Papers 1790, C.E.P.R. Discussion Papers.
    18. DeFond, Mark L. & Park, Chul W., 1997. "Smoothing income in anticipation of future earnings," Journal of Accounting and Economics, Elsevier, vol. 23(2), pages 115-139, July.
    19. Teoh, Siew Hong & Welch, Ivo & Wong, T. J., 1998. "Earnings management and the underperformance of seasoned equity offerings," Journal of Financial Economics, Elsevier, vol. 50(1), pages 63-99, October.
    20. Burgstahler, David & Dichev, Ilia, 1997. "Earnings management to avoid earnings decreases and losses," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 99-126, December.
    21. Bartov, Eli & Gul, Ferdinand A. & Tsui, J.S.L.Judy S. L., 2000. "Discretionary-accruals models and audit qualifications," Journal of Accounting and Economics, Elsevier, vol. 30(3), pages 421-452, December.
    22. DeFond, Mark L. & Jiambalvo, James, 1994. "Debt covenant violation and manipulation of accruals," Journal of Accounting and Economics, Elsevier, vol. 17(1-2), pages 145-176, January.
    23. Erickson, Merle & Wang, Shiing-wu, 1999. "Earnings management by acquiring firms in stock for stock mergers," Journal of Accounting and Economics, Elsevier, vol. 27(2), pages 149-176, April.
    24. Thomas, Jacob & Zhang, Xiao-jun, 2000. "Identifying unexpected accruals: a comparison of current approaches," Journal of Accounting and Public Policy, Elsevier, vol. 19(4-5), pages 347-376.
    25. DeFond, Mark L. & Subramanyam, K. R., 1998. "Auditor changes and discretionary accruals," Journal of Accounting and Economics, Elsevier, vol. 25(1), pages 35-67, February.
    26. Klein, April, 2002. "Audit committee, board of director characteristics, and earnings management," Journal of Accounting and Economics, Elsevier, vol. 33(3), pages 375-400, August.
    27. Leuz, Christian & Nanda, Dhananjay & Wysocki, Peter D., 2003. "Earnings management and investor protection: an international comparison," Journal of Financial Economics, Elsevier, vol. 69(3), pages 505-527, September.
    28. Subramanyam, K. R., 1996. "The pricing of discretionary accruals," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 249-281, October.
    29. John, Kose & Senbet, Lemma W., 1998. "Corporate governance and board effectiveness1," Journal of Banking & Finance, Elsevier, vol. 22(4), pages 371-403, May.
    30. Agrawal, Anup & Chadha, Sahiba, 2005. "Corporate Governance and Accounting Scandals," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 371-406, October.
    31. Shivakumar, Lakshmanan, 2000. "Do firms mislead investors by overstating earnings before seasoned equity offerings?," Journal of Accounting and Economics, Elsevier, vol. 29(3), pages 339-371, June.
    32. DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:por:cetedp:0609. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ana Bonanca)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.