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Regulation, Competition and Independence in a Certification Society: Financial Reports Vs. Baseball Cards

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  • Shyam Sunder
  • Karim Jamal

Abstract

Mandatory certification of the financial reports of publicly-held corporations by independent auditors has been a key element in U.S. regulatory framework to improve financial reporting. The economic consequences of mandatory certification remain controversial. Although each market is unique, comparative analyses of certification services across markets can yield useful insights into the value and consequences of mandatory audit of financial reports. Using a framework for analysis of certification services, we report: (1) descriptive data about certification activity for a range of private sector goods; (2) qualifications and interests of experts who provide online certification or opinion for a fee; and (3) analysis of an online market for certification of baseball card. We find that (1) markets for certification services are ubiquitous in the economy, many with potential for conflicts of interest; (2) the grading scales vary from pass/fail to 100 points with greater use of the former by government agencies; (3) the unregulated market for baseball card certification is dominated by firms who also sell other services; (4) buyers of certification services are willing to pay more for stricter grading; and (5) the net returns to the purchase of stricter certification services are higher, i.e., th

Suggested Citation

  • Shyam Sunder & Karim Jamal, 2006. "Regulation, Competition and Independence in a Certification Society: Financial Reports Vs. Baseball Cards," Yale School of Management Working Papers amz2578, Yale School of Management, revised 01 Jun 2007.
  • Handle: RePEc:ysm:somwrk:amz2578
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    References listed on IDEAS

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    1. Ginger Zhe Jin & Andrew Kato & John A. List, 2010. "That'S News To Me! Information Revelation In Professional Certification Markets," Economic Inquiry, Western Economic Association International, vol. 48(1), pages 104-122, January.
    2. Karim Jamal & Michael Maier & Shyam Sunder, 2003. "Privacy in E-Commerce: Development of Reporting Standards, Disclosure, and Assurance Services in an Unregulated Market," Journal of Accounting Research, Wiley Blackwell, pages 285-309.
    3. Pradeep Dubey & John Geanakoplos, 2005. "Grading in Games of Status: Marking Exams and Setting Wages," Cowles Foundation Discussion Papers 1544, Cowles Foundation for Research in Economics, Yale University, revised Dec 2005.
    4. Alessandro Lizzeri, 1999. "Information Revelation and Certification Intermediaries," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 214-231, Summer.
    5. Ginger Zhe Jin & Phillip Leslie, 2003. "The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 409-451.
    6. David F. Larcker & Scott A. Richardson, 2004. "Fees Paid to Audit Firms, Accrual Choices, and Corporate Governance," Journal of Accounting Research, Wiley Blackwell, vol. 42(3), pages 625-658, June.
    7. Shyam NMI Sunder & Ronald A. Dye, 2001. "Why Not Allow the FASB and IASB Standards to Compete in the U.S.?," Yale School of Management Working Papers ysm192, Yale School of Management.
    8. Mark L. DeFond, 2002. "Do Non-Audit Service Fees Impair Auditor Independence? Evidence from Going Concern Audit Opinions," Journal of Accounting Research, Wiley Blackwell, vol. 40(4), pages 1247-1274, September.
    9. Power, Michael, 1999. "The Audit Society: Rituals of Verification," OUP Catalogue, Oxford University Press, number 9780198296034.
    10. Shyam Sunder & Michael Maier & Karim Jamal, 2004. "Enforced Standards Versus Evolution by General Acceptance: A Comparative Study of E-Commerce Privacy Disclosure and Practice in the U.S. and the U.K," Yale School of Management Working Papers amz2630, Yale School of Management, revised 01 Nov 2004.
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