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What determines the duration of accounting misconduct?

Thu, April 24, 4:00 to 5:15pm, Hilton Salt Lake City Center, TBA

Abstract

In this paper we evaluate the determinants of the duration of accounting misconduct. Using hazard rate models, we evaluate the determinants of the duration of accounting misconduct for …firms that have been issued Accounting and Auditing Enforcement Releases(AAERs) by the SEC. We show that more pro…table firms as well as large firms are able to maintain accounting misconduct over longer time periods. The effect of size, however,
is non-linear, with misconduct by medium-sized …firms being the most likely to end earlier. Moreover, misconduct that affects several areas of the …financial statements lasts longer. Finally, the presence of outside monitors is somewhat counterintuitive. The presence of respected big auditing …firms appears to allow …firms to carry misstatements in their books for longer periods of time. This may indicate that the presence of reputable auditors reduces the incentives of other outside actors to scrutinize the …firm and instead rely on the auditor’s opinion. Conversely, the presence of financial analyst coverage reduces the
chances of longer misconduct spells, although the presence of multiple analysts covering the same firm seems to reduce the value of analyst coverage at the margin.

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