Disclosing conflict of interest : does experience and reputation matter?


Koch, Christopher ; Schmidt, Carsten


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URL: https://ub-madoc.bib.uni-mannheim.de/2580
URN: urn:nbn:de:bsz:180-madoc-25804
Document Type: Working paper
Year of publication: 2006
The title of a journal, publication series: Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung
Volume: 06-10
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject: 330 Economics
Classification: JEL: G28 M42 D82 C91 ,
Subject headings (SWD): Wirtschaftsprüfung , Unternehmensethik , Öffentlichkeitsarbeit , Prestige , Honorar , Interessenkonflikt
Keywords (English): Auditor Independence , Audit Fees , Nonaudit Fees , Experimental Economics
Abstract: Disclosure of conflict of interest is currently seen as an effective tool for reducing threats to auditor independence. Cain, Loewenstein, and Moore (2005) provide evidence for perverse effects of disclosing conflict of interest. Using a controlled laboratory experiment, we replicate their finding that such a disclosure can cause an impairment of auditor independence. However, as subjects gain experience we find that these results revert and auditors give less biased advice. Our results imply that the perverse effects noted in the literature might be an artifact of an environment with inexperienced subjects and of less relevance for the audit environment where main actors are experienced. To the contrary, disclosure of conflict of interest can even improve auditor independence by fostering fairness. Furthermore, we find that disclosure of conflict of interests disturbs reputation building.
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Koch, Christopher ; Schmidt, Carsten (2006) Disclosing conflict of interest : does experience and reputation matter? Open Access Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung Mannheim 06-10 [Working paper]
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