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

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.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Accountancy

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2022

Author dc:creator

• Brumley, Bethany

Contributors dc:contributor

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

• auditing
• disclosure regulation
• SEC enforcement
• municipal bonds

Statement dc:rights

• Copyright 2022 Bethany Brumley

Language dc:language

en, eng

Handle dc:identifier

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

OAI record oai:identifier

https://www.ideals.illinois.edu/oai-pmh?verb=GetRecord&metadataPrefix=etdms&identifier=oai%3Awww.ideals.illinois.edu%3A2142%2F115707