December 08, 2017
CORE (room b-135)
This seminar is CANCELLED !
What Do Auditors’ Opinions Tell Us about Long-Term Macroeconomic Activity?
Scott Joslin, USC Marshall School of Business
This paper proposes and validates the macro-audit hypothesis, an equilibrium theory of a relationship between a form of default intensities—the aggregate frequency of going concern opinions—and the macroeconomy, where auditors’ access to private information across firms (through exposure to accounting data across their client firms) provides superior information about long-term economic risk and growth. More specifically, motivated by economic framework that builds on features of firms’ audit processes and the corporate sector’s role in the macroeconomy, we posit and show that going concern opinions from firms’ financial reports provide useful information not only about the likelihood and severity of firm default but also about long-term macroeconomic activity. We also show that key capital markets players do not fully incorporate predictive information embedded in going concern opinions. Overall, this paper is the first to shed light on the link between audit information in firm-level financial reports and the macroeconomy.
(with Yaniv Konchitchki, Yan Luo, Mary L.Z. Ma)