The effects of firm size, corporate governance quality, and bad news on disclosure compliance

Mike Ettredge (), Karla Johnstone, Mary Stone and Qian Wang
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Mike Ettredge: School of Business, University of Kansas
Karla Johnstone: School of Business, University of Wisconsin
Mary Stone: Culverhouse School of Accountancy, University of Alabama
Qian Wang: College of Business, Iowa State University

Review of Accounting Studies, 2011, vol. 16, issue 4, No 7, 866-889

Abstract: Abstract Motivated by calls for increased compliance, size-based regulation, and continued exemption of small firms from internal control reporting requirements, we assess the incremental effects of firm size, corporate governance quality, and bad news on disclosure compliance. We examine compliance with the disclosure requirements of an SEC-mandated filing that requires no computations or complex judgments but is nonroutine and may reveal value-decreasing information (bad news) that otherwise would not become public. The disclosures studied are those that firms provide in Form 8-K Item 4 when changing external auditors. We find that noncompliant firms have lower quality corporate governance and less need for external financing but are not smaller than compliant control firms. Additional analyses indicate that compliance is negatively associated with bad news.

Keywords: Auditor change; Compliance; Mandatory disclosure; SEC staff comment letters; Size-based regulation (search for similar items in EconPapers)
JEL-codes: M40 M42 (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1007/s11142-011-9153-8

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