Audit Quality
Mandana Taheri; Ghasem Blue; Ramin Parvarpour
Abstract
Information asymmetry and economic uncertainty are features of the capital market in today's complex business environment, which increase audit risk and litigation risk, and can be effective in explaining audit fees. The purpose of this research is to investigate the role of legal claims risk, information ...
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Information asymmetry and economic uncertainty are features of the capital market in today's complex business environment, which increase audit risk and litigation risk, and can be effective in explaining audit fees. The purpose of this research is to investigate the role of legal claims risk, information asymmetry and economic uncertainty in explaining audit fees. The time domain of the research is the period from 2013 to 2021 and the research sample includes 120 companies listed on the Tehran Stock Exchange. Research findings, based on analysis using multivariable regression models on combined data, show that among the macroeconomic variables investigated (including economic growth rate, inflation rate, exchange rate, and interest rate), both economic growth rate and inflation rate have a direct and significant relationship with the audit fee. Additionally, there is a direct and significant relationship between the risk of lawsuits and information asymmetry with the audit fee. The results indicate that the risk of lawsuits, economic uncertainty and information asymmetry play an effective role in explaining auditors' fees. IntroductionAudit fees indicate the amount of auditors' effort to reduce the audit risk to the reasonable level. It is a measure to control financial risk and some legal claims that are threatening audit firms. According to litigation risk, auditors try to control this risk by increasing their efforts and audit fees. Chen (2019) and Frino et al. (2022) state that information asymmetry and economic uncertainty increase audit risk and litigation risk, and can influence audit fees. In other words, audit services are necessitated by the conflict between shareholders and managers. Information asymmetry and economic uncertainty increase agency costs, thereby heightening the necessity for auditing to control and manage these costs. Consequently, auditors increase audit fees to manage audit risks and ensure the thoroughness of their audit work. Therefore, this research aims to explain the effect of litigation risk, information asymmetry, and economic uncertainty on audit fees. MethodologyOur data were collected using financial statements, notes, and audit reports in CODAL[1] database and Rahavard-e-Novin[2] software. The final sample for a period of 2013-2021 consists of 1080 firm-year observations. In addition, the GARCH models were employed to measure the independent variables. To test the first and second hypotheses of this research, model 1 is used:Afeet= litig riskt+ Asymmetryt+ Sizet+ INVRECt +Levt + ROAt+ losst+ CHANGEt +Adu sizet + Specialistt+ LIQUIDt + SALEt +Year Effects+ Industry Effects (1)To test the third hypothesis of research, model 2 is used:Afeet= Economic Growtht-1+ Inflation Ratet-1+ Exchange Ratet-1+ Interest Ratet-1+ Sizet+ INVRECt +Levt + ROAt+ losst+ CHANGEt +Adu sizet + Specialistt+ LIQUIDt + SALEt +Year Effects+ Industry Effects (2)Where, SIZE represents the natural logarithm of total assets; INVREC denotes the amount of inventory and receivables divided by total assets; Lev indicates total liabilities divided by total assets; ROA signifies net profit divided by total assets; LOSS is assigned 1 if a firm has experienced a loss in any of the last three years, and 0 otherwise; CHANGE is assigned 1 if a firm has changed its auditor, and 0 otherwise; LIQUID represents current assets divided by total assets; SALE represents the ratio of sales to assets; Adu size is a dummy variable that equals 1 if the audit firm was either the Iran Audit Organization (IAO) or Mofid Rahbar (an audit firm belonging to IACPA), and 0 otherwise. SPECIALISR is assigned 1 if the auditor is an industry specialist, and 0 otherwise. Audit Fee (AFEE): is the natural logarithm of the audit fee.Information Asymmetry (Asymmetry): According to the model of Venkatesh and Chiang (1986).Economic Uncertainty (RM): Economic uncertainty is the inability of agents to accurately predict the outcomes of decisions. In this research, it has been measured by four indicators, including the fluctuation of economic growth, inflation rate, exchange rate, and interest rate. In addition, a GARCH model was used to index these criteria. For this purpose, a volatile measure of changes in the Gross National Product (GNP) index was considered to be an indicator of the risk of macroeconomic factors that the firm faces in its financial and production decisions. The results of the estimation of the GARCH model led to conditional variances, which ultimately lead to the standard deviation or the concept of uncertainty upon taking the square root.Litigation Risk (Litig risk): We measure this variable based on Lowry and Shu (2002), Krishnan and Zhang (2005), and Sun and Liu (2011). ConclusionThe results of testing the first and second hypotheses indicate that the risk of lawsuits and information asymmetry have a positive and significant relationship with audit fees. In the third hypothesis, the effect of lack of economy on remuneration was investigated. In this research, four indicators including economic growth, inflation rate, exchange rate, and interest rate have been used to measure the economic uncertainty of macroeconomic variables. In this regard, the results of the hypothesis testing show that economic uncertainty based on inflation and economic growth criteria has a positive and significant relationship with audit fees. Additionally, economic uncertainty based on interest rate criterion has a negative and significant relationship with audit fees. However, the exchange rate indicator does not have a significant effect on audit fees. Therefore, it can be seen that audit risk as an indicator of determining audit fees is influenced by some economic variables such as inflation and economic growth.In order to strengthen the results and address potential endogeneity in the research models, we redefined the dependent variable as imaginary (bivariate) and re-estimated the initial models of all three hypotheses. The results of these re-estimations confirmed the findings of the least squares regression in the first model for the first and second hypotheses. In the third hypothesis regarding economic uncertainty, economic growth and inflation rate criteria, as well as exchange rate, lead to an increase in the audit fee, while interest rate causes a decrease in the audit fee. Additionally, new control variables were added to the initial models based on the information provided in previous sections. The results of these additions confirm the findings of the initial estimation of the hypotheses.
Financial Accounting
mandana taheri; Mahtab Jafari
Abstract
Investor Sentiment often stem from held-up beliefs or information unrelated to stock value and can lead to extreme reactions or low reactions to good or bad news in stock valuation. In this study, the effect of two important policies of Earning sharing and debt policy in the company that can be investigated ...
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Investor Sentiment often stem from held-up beliefs or information unrelated to stock value and can lead to extreme reactions or low reactions to good or bad news in stock valuation. In this study, the effect of two important policies of Earning sharing and debt policy in the company that can be investigated on the behavior and inclinations of investors and then the Moderating effect of management Entrenchment on the relationship. To achieve the purpose of the research, four hypotheses were developed and data collected from 163 companies listed on the Tehran Stock Exchange during the years 2011 to 2021 were tested through regression models. The findings of this study showed that dividend policy increases investors' Sentiment but debt policy decreases investors' Sentiment. Management Entrenchment strengthens the positive relationship between dividend policy and investor sentiment. Therefore, during the dividend policy, the managers are of the shareholders' goals and want a higher dividend payment ratio. Management Entrenchment also reinforces the negative relationship between debt policy and investor sentiment. Therefore, risk-averse managers tend to use less debt, which is also a favorite of investors; because they invest in companies that have the least debt and their capital structure shows the importance of equity.
Financial Accounting
Ali Rahmani; Gholamreza Solimani; Mandana Taheri
Abstract
Interest groups, especially shareholders have demand for Disclosure and Reporting in the capital market and they change their expectations of risk and return based on disclosure of information. Therefore, disclosure has economic consequence for companies that according to the empirical literature, cost ...
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Interest groups, especially shareholders have demand for Disclosure and Reporting in the capital market and they change their expectations of risk and return based on disclosure of information. Therefore, disclosure has economic consequence for companies that according to the empirical literature, cost of capital, information asymmetry and stock liquidity, there are three important consequences of disclosure and reporting. One of the disclosures of companies is risk disclosure in the capital market, especially for banks and financial and credit institutions which it require in the form of financial statements and the Report of the Board to the Stock Forum based on complies with the regulations of the Stock Exchange and the Central Bank of Iran. In this paper, we survey the effect of risk disclosure in bank listed in stock market on cost of capital, information asymmetry and stock liquidity as three important of risk disclosure consequences. For this aim, by using the annual data of 18 banks listed in Tehran Stock Exchange during the years 1390 to 1395 we estimate simple regression with panel data. The results show the main hypothesis (there is a consequential risk disclosure of the banks listed in the stock market), confirms. In addition, risk disclosure has a positive and significant relationship with cost of capital and information asymmetry, but there is no significant relationship between risk disclosure and stock liquidity.
