Essay I

Public Oversight of Auditing and Voluntary Disclosure

The Public Company Accounting Oversight Board (PCAOB) issues auditor-specific inspection reports that summarize audit deficiencies. I examine whether audit deficiencies affect voluntary disclosure of the auditors’ client firms since these deficiencies make investors uncertain about firms’ prospects inferred from audited financial statements. I find robust evidence that firms issue more management earnings forecasts if their auditors have higher audit deficiency rates. In addition, the association between audit deficiencies and management earnings forecasts is stronger for firms with greater information demand or firms with more incentives to disclose. Overall, my evidence suggests that firms use voluntary disclosure to active...[ Read more ]

Essay I

Public Oversight of Auditing and Voluntary Disclosure

The Public Company Accounting Oversight Board (PCAOB) issues auditor-specific inspection reports that summarize audit deficiencies. I examine whether audit deficiencies affect voluntary disclosure of the auditors’ client firms since these deficiencies make investors uncertain about firms’ prospects inferred from audited financial statements. I find robust evidence that firms issue more management earnings forecasts if their auditors have higher audit deficiency rates. In addition, the association between audit deficiencies and management earnings forecasts is stronger for firms with greater information demand or firms with more incentives to disclose. Overall, my evidence suggests that firms use voluntary disclosure to actively mitigate the investors’ information uncertainty caused by audit deficiencies.

Essay II

Face-to-Face Meetings and Investor Uncertainty

Motivated by mosaic theory, this study conjecture that face-to-face meetings provide soft information about management’s quality and strategy that is complementary with or helps interpret the firm’s subsequent hard performance reports. Using a proprietary dataset of 2,105 frequent guiders that communicate management guidance through face-to-face meetings or less personal means, I find that firms communicating through face-to-face meetings experience a greater decline in investor uncertainty at the next earnings announcements. The result is more pronounced for R&D intensive firms, which convey more soft information. The finding is also more pronounced for broker-initiated conferences, which provide a new economical face-to-face opportunity to firms. Overall, this study highlights the importance of understanding the complementary relation between accounting information released at different times.