Full Citation

Title: Employee firing costs and auditors’ going-concern opinions: Evidence from wrongful discharge laws

Citation Type: Journal Article

Publication Year: 2023

ISBN:

ISSN: 0278-4254

DOI: 10.1016/J.JACCPUBPOL.2023.107070

NSFID:

PMCID:

PMID:

Abstract: This paper examines the impact of employee firing costs on auditors’ going-concern (GC) reporting decisions by exploiting the wrongful discharge laws (WDLs) adopted by U.S. states. We find that auditors are more likely to issue GC opinions to financially-distressed clients headquartered in states that have adopted the laws, in particular the good faith exception, than to clients in states that have not. This finding is robust to controlling for the state-level economics, the strictness of legal liability rules, audit office fixed effects, as well as alternative definitions of financial distress and estimation methods. The impact is concentrated in labor-intensive clients and clients in industries with a higher proportion of nonunionized or permanent employees. We further find that the increased propensity to issue GC opinions is attenuated when the auditor is economically dependent on the client, and is driven by auditors who possess labor-specific expertise. Overall, these findings are consistent with higher firing costs increasing auditors’ propensity to issue GC opinions.

Url: https://www.sciencedirect.com/science/article/pii/S0278425423000121

User Submitted?: No

Authors: Li, Xu; Xin, Qian

Periodical (Full): Journal of Accounting and Public Policy

Issue: 3

Volume: 42

Pages: 1-20

Data Collections: IPUMS CPS

Topics: Labor Force and Occupational Structure, Poverty and Welfare

Countries: