Financial consequences of accountant's liability

Abstract:

In this project, we investigate the economic consequences/efficacy of different auditor liability caps in the EU. In contrast to prior studies, we also focus on firm-level heterogeneity in audit quality and perceived audit quality, controlling for concurrent accounting regulation changes. The consequences/efficacy of a cap on auditor liability have been extensively examined and (by far) most studies confirm the deep pockets hypothesis. However, empirical results on European data are mixed. In this project, we use the change in the Belgian auditor liability in Austria, Belgium and Germany to test the capital-market effects of different auditor liability caps. That is, we exploit the between country-and various types of within country-variation in a battery of different research methods, designs and tests.