Board structure and modified audit opinions: the case of the Portuguese Stock Exchange

Jorge Farinha () and Luis Filipe Viana ()
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Jorge Farinha: CETE, Faculdade de Economia, Universidade do Porto
Luis Filipe Viana: DGCI - Direcção-Geral dos Impostos

CEF.UP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: Prior research has found evidence that some characteristics of the board of directors influence the quality of accounting information (e.g., Beasley, 1996; Dechow et al., 1996; Klein, 2002a; Xie et al., 2003). In this study we extend the literature by analysing a different dimension of accounting information quality, the probability of a firm receiving a modified audit opinion. Using a sample of companies listed on Euronext Lisbon where firms can publish financial statements not in accordance with GAAP, unlike the current situation in other markets like the US, and 91 firm-year observations for the period 2002-03, we find evidence consistent with the hypotheses that board diligence and independence contribute negatively to the probability of a modified opinion, while board size is not statistically significant. Our results are robust to different specifications and also show that financial health, performance, growth opportunities and the existence of dividend payments are additional factors affecting the likelihood of a modified audit opinion.

Keywords: auditing; modified opinions; accounting quality; board structure; corporate governance; non-executive directors (search for similar items in EconPapers)
JEL-codes: G34 G38 M42 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2006-10
New Economics Papers: this item is included in nep-acc and nep-fin
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