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VOLUNTARY AUDITS IN NEW YORK MARKETS IN 1927: A CASE STUDY
Author(s) -
Merino Barbara D.,
Mayper Alan G.,
Sriram Ram S.
Publication year - 1994
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1994.tb00341.x
Subject(s) - audit , incentive , accounting , sample (material) , business , capital market , stock (firearms) , economics , finance , microeconomics , engineering , mechanical engineering , chemistry , chromatography
This study examines the demand for audits in the pre‐SEC period in the United States. We focus on three hypotheses ‐ monitoring, information, and capital formation ‐ to test the economic incentives prior researchers have posited led to demand for audits. We compare a sample of companies traded in three non‐NYSE markets (unregulated) to a sample of NYSE listed companies (regulated). We found that the need to raise capital did increase use of audits, but that neither the monitoring nor information hypotheses explain this early demand. Common stock ratings appeared to be a cost‐effective alternative to audits and we found little evidence that audits improved the quality of financial reports.