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- Title
Does Mandated Disclosure Induce a Structural Change in the Determinants of Nonaudit Service Purchases?
- Authors
Abbott, Lawrence J.; Parker, Susan; Peters, Gary F.
- Abstract
We investigate the association between mandated fee disclosures and structural changes in the determinants of nonaudit services (NAS). The Securities and Exchange Commission (SEC) underscored the importance of understanding the impact of disclosures when the Auditor Independence Rules of 2000 explicitly relied on market responses to discipline NAS purchases. In contrast, the Sarbanes-Oxley Act of 2002 (SOX) relied upon prohibitions of NAS. Our findings suggest that market-based approaches were functioning prior to SOX prohibitions. We find that after the SEC mandated fee disclosures, NAS purchases become negatively associated with firms seeking financing and positively associated with managerial ownership. We also document a significantly smaller propensity for NAS purchases among larger firms, compared to a nondisclosure environment. Last, we find that mandated disclosures significantly increase the negative association between NAS purchases and effective audit committees. Collectively, our findings are consistent with mandated disclosures increasing agency cost incentives for limiting NAS purchases
- Subjects
FINANCIAL markets; AUDIT committees; AUDITING of corporations; ORGANIZATIONAL structure; SECURITIES trading
- Publication
Auditing: A Journal of Practice & Theory, 2011, Vol 30, Issue 2, p51
- ISSN
0278-0380
- Publication type
Article
- DOI
10.2308/ajpt-50001