An Experimental Investigation of the Role of Auditing and Corporate Governance in Restraining Managerial Expropriation and Truthful Reporting

Project: Research

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This project proposes a controlled laboratory experiment to investigate the role of auditing in restraining expropriation and inaccurate financial reporting. First, the investigators will examine market equilibrium without auditing. Second, they will allow costly but imperfect audit and examine the effect of the audit level on investor returns, managerial expropriation, and reporting. Third, they will examine the effects of (i) poison pills, and (ii) founder investors. Empirical studies, on the role of auditing in preventing expropriation and improving transparent reporting, cannot fully control auditing and governance characteristics to study the impact of auditing in different contexts. The experimental approach can complement empirical studies in investigating how auditing affects performance and reporting accuracy. The results of this study can potentially guide corporate governance and audit policy regulations. Such results on the founder investor setting are useful because they capture the distinctive family-dominated corporate governance structure in Hong Kong and other Asian markets.


Project number7002163
Grant typeSRG
Effective start/end date1/04/0717/07/08