Lawsuit Outcomes and the Deep Pockets of Big Four audit firms

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)31A_Invited conference paper (refereed items)Invitedpeer-review

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Detail(s)

Original languageEnglish
Publication statusPublished - 30 Nov 2017

Conference

Title2017 Accounting Theory and Practice Conference & 2017 Asian Accounting Associations Conference
LocationChinese Culture University
PlaceTaiwan
CityTaipei
Period30 November - 1 December 2017

Abstract

It is often argued that Big Four firms have deep pockets, which provide substantial compensation to investors in the event of litigation. However, prior litigation research fails to find consistent evidence supporting the deep pockets argument. Different from prior research, we separately model both the dollar size of the payout to the plaintiff and the probability of a payout. We predict that, in a deep pockets action, the dollar size of the payout is relatively large whereas the payout probability is relatively small. Consistent with these predictions, we find that payouts are significantly larger when Big Four firms are sued but the payout probabilities are significantly smaller. We conclude that deep pockets lawsuits have lottery-like characteristics, in the sense that the dollar payouts are large but the payout probabilities are small.

Research Area(s)

  • Accounting lawsuits, lawsuit outcomes, deep pockets

Bibliographic Note

Research Unit(s) information for this publication is provided by the author(s) concerned.

Citation Format(s)

Lawsuit Outcomes and the Deep Pockets of Big Four audit firms. / Lennox, Clive; LI, Bing.

2017. 2017 Accounting Theory and Practice Conference & 2017 Asian Accounting Associations Conference, Taipei, Taiwan.

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)31A_Invited conference paper (refereed items)Invitedpeer-review