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Do Religion, Corporate Governance and BIG 4 Audit Interactions Affect Misclassification?

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  • Boahen, Eric
  • Mamatzakis, Emmanuel

Abstract

This study examines the extent to which religious socials norms of the firms’ environment interacts with corporate governance and BIG4 audit to affect managers’ motivation to engage in misclassification so as to influence reported core earnings. Using a sample of 23,164 U.S. firm-year observations between 2000 and 2015, we show that religiosity complements corporate governance to mitigate classification shifting in both rural and urban areas. In a religious environment, we find that managers have disincentive to shift revenue items from and core expenses into special items to inflate reported core earnings to avoid market penalties and beat analyst forecast, even more so in the presence of board independence. In addition, we find that the interaction between religiosity and audit from big four auditors also lower the presence of misclassification. Overall, results show that religiosity complements corporate governance and audit against misclassifying revenue items or core expenses.

Suggested Citation

  • Boahen, Eric & Mamatzakis, Emmanuel, 2016. "Do Religion, Corporate Governance and BIG 4 Audit Interactions Affect Misclassification?," MPRA Paper 76804, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:76804
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    File URL: https://mpra.ub.uni-muenchen.de/76804/1/MPRA_paper_76804.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Religiosity; Classification Shifting; Corporate Governance; BIG4 and Audit Tenure.;

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • Z12 - Other Special Topics - - Cultural Economics - - - Religion

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