What is the interplay between auditing and regulatory investigations? Evidence from the municipal bond market

Brumley, Bethany

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https://hdl.handle.net/2142/115707 Copy

Description

Title

What is the interplay between auditing and regulatory investigations? Evidence from the municipal bond market

Author(s)

Brumley, Bethany

Issue Date

2022-04-18

Director of Research (if dissertation) or Advisor (if thesis)

Thompson, Anne

Doctoral Committee Chair(s)

Thompson, Anne

Committee Member(s)

• Almeida, Heitor
• Sougiannis, Theodore
• Urcan, Oktay

Department of Study

Accountancy

Discipline

Accountancy

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

• auditing
• disclosure regulation
• SEC enforcement
• municipal bonds

Abstract

I examine how auditing and regulatory investigations impact compliance with disclosure regulation and the cost of debt in the municipal bond market. Widespread noncompliance led the SEC to initiate an enforcement program and Louisiana to pass a state law requiring auditors to test compliance with disclosure regulation. I find that municipal bond issuers increase disclosure frequency by 32 percent following regulatory investigations without auditing and incrementally increase disclosure frequency by 59 percent following regulatory investigations with auditing, suggesting that they are complementary enforcement mechanisms. The cost of debt for new bond issues decreases by 11 basis points following regulatory investigations with auditing but does not change following regulatory investigations without auditing, suggesting that auditing decreases investors’ perception of default risk. Overall, my findings inform policy makers and regulators on the role of auditing over compliance with disclosure regulation as a mechanism to protect investors.

Graduation Semester

2022-05

Type of Resource

Thesis

Copyright and License Information

Copyright 2022 Bethany Brumley

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