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Audited financial reporting and voluntary disclosure as compliments: A test of the confirmation hypothesis


Journal of Accounting and Economics



Authors / Editors

Ball R;Jayaraman S;Shivakumar L

Publication Year



We examine the “confirmation” hypothesis that audited financial reporting and disclosure of managers' private information are complements, because independent verification of outcomes disciplines and hence enhances disclosure credibility. Committing to higher audit fees (a measure of financial statement verification) is associated with management forecasts that are more frequent, specific, timely, accurate and informative to investors. Because private information disclosure and audited financial reporting are complements, their economic roles cannot be evaluated separately. Our evidence cautions against drawing inferences exclusively from market reactions around “announcement periods” because audited financial reporting indirectly affects information released at other times and through other channels.


Confirmatory role of financial reporting; Private information; Credible commitment; Voluntary disclosure; Management forecasts; Audit verification

Available on ECCH


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