Affiliation:
1. Department of Accounting, College of Business University of Houston–Victoria Victoria Texas USA
Abstract
We investigate how investors perceive audit report lag. We argue that the cost of equity will be lower (higher) if a long audit report lag links positively to confidence (scepticism) among investors about the credibility of reported earnings. We find that the audit report lag is positively associated with the cost of equity. In the additional analyses, we report that the audit committee's effective monitoring, Big N auditors and industry‐expert auditors moderate the positive association between audit report lag and the cost of equity. Lastly, the short window return‐earnings association test suggests that investors perceive that long audit report lag reflects less credible financial reporting quality. In summary, our findings provide implications to the client firms, the practitioners and the regulators by showing that the firm's cost of raising equity capital is positively associated with the audit report lag.
Subject
General Economics, Econometrics and Finance,Accounting