Asymmetric Reactions of Abnormal Audit Fee Jump to Credit Rating Changes
Abstract Considering the inherent stickiness of abnormal audit fees, our study contributes to the literature by decomposing abnormal audit fees into a jump component and long-run sticky component. We investigate whether and how changes in credit ratings asymmetrically affect the jump component of a...
| Main Authors: | , , , |
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| Format: | Journal Article |
| Published: |
Elsevier
2023
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| Online Access: | http://hdl.handle.net/20.500.11937/91242 |
| _version_ | 1848765500357607424 |
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| author | Cao, June Hasan, I. Ee, M.S. Huang, H. |
| author_facet | Cao, June Hasan, I. Ee, M.S. Huang, H. |
| author_sort | Cao, June |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | Abstract
Considering the inherent stickiness of abnormal audit fees, our study contributes to the literature by decomposing abnormal audit fees into a jump component and long-run sticky component. We investigate whether and how changes in credit ratings asymmetrically affect the jump component of abnormal audit fees. We document a positive association between rating downgrades and the jump component. We find that heightened bankruptcy risk and misstatement risk are the mechanisms that drive this relationship. Further analysis shows that firms experiencing rating downgrades are more likely to receive a going concern opinion and experience longer audit report lags. Taken together, our findings provide direct evidence that credit ratings are significantly associated with abnormal audit fees, particularly with the jump component. Given the serial correlation of abnormal audit fees, our study sheds light on the importance of disaggregation of the abnormal audit fee residuals into the jump and long-run sticky components. |
| first_indexed | 2025-11-14T11:36:14Z |
| format | Journal Article |
| id | curtin-20.500.11937-91242 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T11:36:14Z |
| publishDate | 2023 |
| publisher | Elsevier |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-912422025-06-16T03:12:57Z Asymmetric Reactions of Abnormal Audit Fee Jump to Credit Rating Changes Cao, June Hasan, I. Ee, M.S. Huang, H. Abstract Considering the inherent stickiness of abnormal audit fees, our study contributes to the literature by decomposing abnormal audit fees into a jump component and long-run sticky component. We investigate whether and how changes in credit ratings asymmetrically affect the jump component of abnormal audit fees. We document a positive association between rating downgrades and the jump component. We find that heightened bankruptcy risk and misstatement risk are the mechanisms that drive this relationship. Further analysis shows that firms experiencing rating downgrades are more likely to receive a going concern opinion and experience longer audit report lags. Taken together, our findings provide direct evidence that credit ratings are significantly associated with abnormal audit fees, particularly with the jump component. Given the serial correlation of abnormal audit fees, our study sheds light on the importance of disaggregation of the abnormal audit fee residuals into the jump and long-run sticky components. 2023 Journal Article http://hdl.handle.net/20.500.11937/91242 10.1016/j.bar.2023.101205 Elsevier fulltext |
| spellingShingle | Cao, June Hasan, I. Ee, M.S. Huang, H. Asymmetric Reactions of Abnormal Audit Fee Jump to Credit Rating Changes |
| title | Asymmetric Reactions of Abnormal Audit Fee Jump to Credit Rating Changes |
| title_full | Asymmetric Reactions of Abnormal Audit Fee Jump to Credit Rating Changes |
| title_fullStr | Asymmetric Reactions of Abnormal Audit Fee Jump to Credit Rating Changes |
| title_full_unstemmed | Asymmetric Reactions of Abnormal Audit Fee Jump to Credit Rating Changes |
| title_short | Asymmetric Reactions of Abnormal Audit Fee Jump to Credit Rating Changes |
| title_sort | asymmetric reactions of abnormal audit fee jump to credit rating changes |
| url | http://hdl.handle.net/20.500.11937/91242 |