Brian Burnett, Hui Chen, Katherine Gunny
Journal of Accounting, Auditing & Finance,Vol. 33, Issue 3, Pages: 402-434.
Regulators and the public have expressed concerns about accounting firms lobbying politicians and regulators on behalf of their own audit clients because it could pose an advocacy threat to auditor independence. In this study, we examine whether these lobbying activities by accounting firms are associated with their clients’ audit quality. As required disclosures of lobbying activities under the Lobbying Disclosure Act are very limited, we construct a proxy to capture auditor lobbying on behalf of audit clients. Using our proxy for lobbying, we find that perceived audit quality (measured using earnings response coefficients) is negatively related to lobbying. However, we fail to find that actual audit quality is lower for these clients (measured as the propensity to restate earnings, propensity to issue a going-concern opinion, and discretionary accruals). Our findings suggest that investors perceive auditors’ lobbying for

Katherine A Gunny, Judith M Hermis
Contemporary Accounting Research,
The U.S. Securities and Exchange Commission (SEC) reviews firm filings and issues comment letters on those filings. These comment letters play an important role in the assessment of firm value. These activities are seasonally compressed because over 70 percent of registrants have a December fiscal yearend. Research in other settings finds that busyness leads to negative outcomes. We examine how busyness impacts the frequency, scope, and timeliness of comment letters. We find that the SEC issues fewer comment letters when busy, the SEC focuses its limited resources on the most severe cases of disclosure noncompliance, and extends the amount of time between receiving a firm’s filing and issuing a comment letter. Despite this, we find no evidence that the SEC misses more serious compliance issues when busy. Our results have implications for policymakers responsible for allocating resources to the

Lawrence J Abbott, Katherine Gunny, Troy Pollard
Contemporary Accounting Research,Vol. 34, Issue 2, Pages: 1103-1127.
We use reverse mergers to examine the impact of litigation risk on audit fees. In a reverse merger, a private company merges with a public company, and the private company’s management takes over the resulting publicly traded firm. Reverse mergers create a unique test setting to provide estimates on the litigation risk premium because, while the litigation risk for formerly private firms whose equity becomes publicly traded increases, the remaining auditee and auditorrelated characteristics remain virtually unchanged. We document a litigation risk premium of approximately 27 percent. Moreover, we document that equity dispersion impacts the audit fee pricing of litigation risk and this relation is dramatically magnified in the publicly traded realm. Finally, we find that institutional investors demand higher audit effort in the form of higher audit fees in both the private and publicequity settings.

Jeff Zeyun Chen, Marc Cussatt, Katherine A Gunny
Journal of Accounting, Auditing & Finance,Pages: 0148558X17692691.
A large body of the corporate governance literature examines the disciplinary role of outside directors in overseeing the CEO. Although it is certainly a critical factor in effective monitoring, independence alone is not sufficient. Fulfilling the monitoring role also requires a skilled and knowledgeable board (Acharya, Myers, & Rajan, 2011; Adams & Ferreira 2007; Raheja, 2005). The skills and knowledge needed for monitoring vary with the type of CEO activity being monitored. For certain managerial actions that require sufficient firm-specific knowledge and expertise to exercise discipline, board informedness could be at least as critical as board independence. Given the trade-off between informedness and independence, outside directors are not necessarily better monitors than inside directors due to information disadvantages. 1 In this study, we examine whether and to what extent an independent board constrains

Katherine Gunny, Tracey Chunqi Zhang
Journal of Business Finance & Accounting,Vol. 41, Issue 7-8, Pages: 950-973
This study examines whether firms manage earnings to meet analyst forecasts to signal superior future performance. Prior research finds that firms use earnings management to just meet analyst forecasts and that these firms have a positive association with future performance (Bartov et al., 2002). There are two potential explanations for the positive association ” signaling and attaining benefits that allow for better future performance (i.e., the real benefits explanation). Prior studies cannot provide evidence of signaling because they do not control for the real benefits explanation. Our research design enables us to control for the real benefits explanation because we can identify potential signaling firms within the sample of firms that just meet analyst forecasts. We use a unique database from the National Bureau of Economic Research to construct a proxy for the manager’s belief about future firm value due to patents