Published: Public Oversight and Reporting Credibility: Evidence from the PCAOB Inspection Regime ​​​​​

Paper Authors: Brandon Gipper, Christian Leuz, and Mark Maffett

Publication: The Review of Financial Studies, December 2019

Abstract: This paper studies the impact of public audit oversight on financial reporting credibility. We analyze changes in market responses to earnings news after public audit oversight is introduced, exploiting that the regime onset depends on fiscal year-ends, auditors, and the rollout of auditor inspections. We find that investors respond more strongly to earnings news following public audit oversight. Corroborating these findings, we find an increase in volume responses to 10-K filings after the new regime. Our results show that public audit oversight can enhance reporting credibility and that this credibility is priced in capital markets.

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The​ economic research fellows and staff economists generate ​high-quality working papers that inform t​he oversight activities of the PCAOB and are disseminated to stimulate discussion and critical comment to the benefit of the public. ​Working papers are preliminary materials that have not been approved by the Board and reflect only the views of the author(s).

The research topics of economic research fellows​, including a description of any nonpublic data sets required for research, are presented to the Board for approval and r​esearch papers are reviewed to confirm that the topic of the paper is consistent with the researcher's proposal. That review does not, however, encompass an evaluation of the conclusions reached by researchers​.​​