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The Influence of Fraudulent Financial Reporting on the Monitoring and Verification of Peer Firms’ Financial Reporting Process

Fri, January 16, 10:15 to 11:45am, TBA

Abstract

Prior research contends that financial misreporting has a spillover effect on the outcomes of peer firms within the same industry through investment decisions, information risk, and shareholder wealth. We predict and confirm a higher level of scrutiny over financial reporting by external auditors for peer firms that are proximate, in terms of industry membership and geographical proximity, to firms that have announced a fraudulent financial misstatement. Our results suggest a spillover effect on the monitoring of the financial reporting process of proximate peer firms.

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