Product Market Competition and Audit Fees

2014 ◽  
Vol 34 (4) ◽  
pp. 139-156 ◽  
Author(s):  
Yuequan Wang ◽  
Andy C. W. Chui
Keyword(s):  
Financial Reporting ◽  
Market Competition ◽  
Product Market ◽  
Audit Fees ◽  
Product Market Competition ◽  
Business Risk ◽  
Audit Risk ◽  
Competitive Industry ◽  
The One ◽  
Jel Classifications

SUMMARY Existing theories posit two contradictory predictions on the relation between product market competition and audit fees. On the one hand, product market competition can mitigate agency problems between shareholders and managers and increase the accuracy of financial reporting, thus decreasing auditors' assessments of audit risk. Hence, auditors tend to charge lower fees to firms in a more competitive industry. On the other hand, product market competition can increase auditors' assessments of business risk. Therefore, audit fees are expected to increase with industry competitiveness. This study empirically tests the relation between product market competition and audit fees and finds that auditors charge more to firms in a more competitive industry. JEL Classifications: D4, G30, M41, M42.

The Relationship Between Competition and the Fraction of Firms Using Stock-Based Compensation in an Industry

2014 ◽  
Vol 17 (01) ◽  
pp. 1450006
Author(s):  
Hsing-Hua Huang ◽  
Chia-Fan Lin
Keyword(s):  
Empirical Evidence ◽  
Risk Taking ◽  
Market Competition ◽  
Negative Relationship ◽  
Product Market ◽  
Product Market Competition ◽  
Competitive Industry ◽  
Risk Taking Behavior ◽  
The Relationship

This paper theoretically and empirically investigates the relationship between the intensity of product market competition and the fraction of firms that use stock-based compensation in an industry. By employing the relationship between a firm's risk-taking behavior and the use of stock-based compensation, we theoretically show that when the fraction of firms using stock-based compensation is less (more) than one-half, there is a positive (negative) relationship between the fraction and the intensity of product market competition and further provide some supportive empirical evidence. Our results imply that there is more heterogeneity in firms' stock-based compensation policies in the more competitive industry.

Product Market Competition, Legal Institutions, and Accounting Conservatism

2015 ◽  
Vol 14 (2) ◽  
pp. 1-39 ◽  
Author(s):  
In-Mu G. Haw ◽  
Simon S. M. Ho ◽  
Yuansha Li ◽  
Feida (Frank) Zhang
Keyword(s):  
Financial Reporting ◽  
Insider Trading ◽  
Earnings Quality ◽  
Market Competition ◽  
Positive Association ◽  
Product Market ◽  
Accounting Conservatism ◽  
Product Market Competition ◽  
Legal Institutions ◽  
International Setting

ABSTRACT In this study, we examine product market competition's role in shaping accounting conservatism in an international setting. Using a large dataset from 38 countries, we find evidence that product market competition is positively associated with accounting conservatism in countries with strong legal institutions, but not in countries with weak legal institutions. Moreover, the positive association is significantly more pronounced in countries with high-quality financial reporting environments comprising a higher earnings quality, more frequent and greater disclosure practices, and the more stringent enforcement of insider trading regulations. Our empirical findings suggest that product market competition and strong legal institutions jointly drive accounting conservatism.

Product market competition, regulatory changes, ownership structure and accounting conservatism

2017 ◽  
Vol 11 (4) ◽  
pp. 658-688 ◽  
Author(s):  
Muhammad Ansar Majeed ◽  
Xian-zhi Zhang ◽  
Zhaonan Wang
Keyword(s):  
Financial Reporting ◽  
Price Competition ◽  
Market Competition ◽  
Product Market ◽  
Accounting Conservatism ◽  
Product Market Competition ◽  
Managerial Ownership ◽  
Content Type ◽  
Regulatory Changes ◽  
Reporting Decisions

Purpose This study aims to examine the impact of various dimensions of product market competition on accounting conservatism particularly in the wake of regulatory changes and varying ownership structures in China. Design/methodology/approach This study examines impact of product market competition on accounting conservatism by using conservatism measure of Khan and Watts (2009) and measures for important dimensions of competition such as competition intensity, non-price competition and competition from existing rivals and potential entrants. Findings The findings suggest that competition intensity and non-price competition result in higher conservatism. This study also advocates that industry leaders exhibit lower conservatism as compared to industry followers. Moreover, the authors document positive association between competition from existing/potential rivals and accounting conservative. These findings reveal that regulatory changes (International Financial Reporting Standards adoption) influence the effect of various dimensions of competition on conservatism. The authors also propose that financial reporting practices of state-owned enterprises are not influenced by competition. However, competition affects financial reporting (conservatism) when institutional or managerial ownership is higher. Originality/value The authors document that strategic considerations shape conservative financial reporting decisions of the managers. This study also advocates that when regulatory changes affect the influence of competitive pressure on the conservative reporting decisions of the mangers. Findings also suggest that unlike state ownership, institutional as well as managerial ownership affects the influence of competition on managerial decisions like conservative financial reporting. These results are robust to various alternative measures of conservatism.

scholarly journals Does Reporting Transparency Affect Industry Coordination? Evidence from the Duration of International Cartels

2018 ◽  
Vol 94 (3) ◽  
pp. 149-175 ◽  
Author(s):  
Igor Goncharov ◽  
Caspar David Peter
Keyword(s):  
Economic Theory ◽  
European Commission ◽  
Financial Reporting ◽  
Market Competition ◽  
Accounting Standards ◽  
Product Market ◽  
Product Market Competition ◽  
Transparent Reporting ◽  
Segment Disclosure ◽  
Industry Peers

ABSTRACT Firms coordinate their actions with industry peers, thereby affecting product market competition. Using the cartel setting, we investigate how financial reporting transparency affects industry coordination. Economic theory predicts that transparency might either prolong cartel duration through increased contracting efficiency, or destabilize cartels due to earlier detection of deviating members. We test these predictions on firms indicted by the European Commission for anticompetitive behavior between 1980 and 2010. Using reporting under internationally recognized accounting standards (IFRS or U.S. GAAP) as our measure of reporting transparency, we find that following a transparent accounting framework decreases cartel duration. We show this finding is partly explained by transparent segment disclosure, which provides a means for the verification of agreed-upon sales for a product or region. Consistent with the view that transparent reporting leads to earlier detection of deviating members, we further show that transparency lowers cartel duration when the likelihood of cheating is high.

scholarly journals Profitability, Product Market Competition, and Stock Returns

2019 ◽  
Vol 8 ◽  
pp. 36-46
Author(s):  
Scott Li
Keyword(s):  
Stock Returns ◽  
Market Competition ◽  
Product Market ◽  
Product Market Competition ◽  
Investment Strategies ◽  
Competitive Industry ◽  
Competition Level

This paper finds that product market competition level (measured by Herfindahl Hirschman Index using Fama French 48 industries) affects the performance of zero-cost investment strategies based on gross probability. From 1973 to 2017, the positive returns from such strategy mainly comes from the most competitive industry quintile while a strong reversal exists the second most competitive quintile. The same strategy does not generate any statistically significant returns in concentrated industry quintiles. Out of 25 dependently sorted portfolios on product market competition level and gross profitability, the top performing portfolio comes from the least profitable firms in the second most competitive industry quintile, where 65% of firms are from pharmaceutical and oil industries.

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