Question

In an article in Accounting and Business Research, Carslaw and Kaplan investigate factors that influence "audit delay" for firms in New Zealand. Audit delay, which is defined to be the length of time (in days) from a company’s financial year-end to the date of the auditor’s report, has been found to affect the market reaction to the report. This is because late reports often seem to be associated with lower returns and early reports often seem to be associated with higher returns. Carslaw and Kaplan investigated audit delay for two kinds of public companies—owner-controlled and manager-controlled companies. Here a company is considered to be owner-controlled if 30 percent or more of the common stock is controlled by a single outside investor (an investor not part of the management group or board of directors). Otherwise, a company is considered manager controlled. It was felt that the type of control influences audit delay.

Answer 1

The question is about how audit delay, influenced by corporate governance, affects market reaction to financial reports, with an example of Lehman Brothers' governance failure.

Step-by-step explanation:

The student's question pertains to an article on audit delay and how it influences market reactions to financial reports. The concepts discussed in the question relate to corporate governance and its role in ensuring timely and accurate financial information from firms. Corporate governance includes various institutions like the board of directors, external auditing firms, and outside investors, whose responsibilities include oversight of top executives and ensuring that stakeholders have the information they need. The case of Lehman Brothers is highlighted as an example where corporate governance did not function as intended, leading to a failure to provide investors with accurate and reliable financial information.