 Universal demand laws and stakeholders: Evidence from the auditor's perspectiveAlona Bilokha, Joon Ho Kong and Joseph A. Micale Advances in accounting, 2024, vol. 67, issue C Abstract: This study analyzes the impact of universal demand (UD) laws, which limit shareholders' ability to initiate derivative litigation against firms and auditors, on the behavior of external auditors. After confirming that UD laws reduce the likelihood that clients (auditors) will be named in this type of litigation, we find that firms incorporated in states that have adopted UD laws have lower increases in audit fees than states that have not adopted such laws. These results are magnified for firms when the client's (auditor's) bargaining power is high (low) but not for those actively engaged in derivative litigation, suggesting that auditors are able to distinguish actively the firms that benefit from the lower risk of derivative litigation. We do not find evidence that reporting quality declines as a result of these reduced fees. Our results suggest that UD laws relieve unnecessary burdens imposed by excessive derivative litigation on firms and auditors. Keywords: Audit fees; Derivative litigation; Financial reporting quality; Audit quality; Litigation risk; Universal demand law (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:advacc:v:67:y:2024:i:c:s0882611024000373 DOI: 10.1016/j.adiac.2024.100766 Access Statistics for this article Advances in accounting is currently edited by Dennis Caplan More articles in Advances in accounting from Elsevier |
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