Santanu Mitra's co-authored paper selected for publication in the International Journal of Auditing

Santanu Mitra, professor of accounting at the Mike Ilitch School of Business, had a co-authored paper titled, "Narrative disclosures, firm life cycle and audit fees" accepted for publication in the International Journal of Auditing (IJA). IJA is published by Wiley, with its editorial office located at the University of Auckland, New Zealand. IJA is a high-quality research journal and ranked 'A' by the Australian Business Dean Council journal list. The other authors of the paper include Mahmud Hossain and Feras Salama of American University of Sharjah in the UAE. 


This study examines the relationship between narrative disclosure properties in terms of readability, optimism, and ambiguity of annual reports and audit fees, and how the relationship changes across firms’ various life cycle stages. Using 54,883 observations for the years from 2000 to 2016, we find that these textual disclosure properties have positive audit pricing consequences. The results suggest that narrative disclosure properties play an important role in estimating audit risk and thus, audit fees. We further posit that the audit fee consequences of these disclosure characteristics vary across different phases of a client firm’s corporate life cycle. While we observe that with a decrease in readability, and increase in optimism and ambiguity of disclosure language, audit fees increase in the introduction phase, a firm’s entry to the growth phase moderates the influence of these narrative disclosure features on audit fees. However, the impact of these lexical features on audit fees increases as client firms switch (1) from the growth phase to the maturity phase and (2) from the maturity phase to the decline phase. Based on these findings, we argue that when examining the audit fee implication for management’s disclosure strategies, researchers should treat client firms as dynamic evolving entities. 

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