The impact of reputation on a firm's financial and non-financial outcomes

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Copyright: Khoo, Eunice
This thesis examines the role of reputation on a firm’s financial and non-financial outcomes through three studies. The first study examines whether the reputation incentives of busy audit committee members improve their effectiveness in monitoring the financial reporting process. I find that firms with a larger proportion of audit committee members where the membership is the most prominent are associated with higher financial reporting quality and more effective monitoring of internal control. Additional analyses reveal that my results are driven by audit committee members’ reputation incentives rather than independent non-audit committee members’ reputation incentives. I conclude that audit committee member reputation is a strong incentive for audit committee members, such that it influences their monitoring effectiveness over the financial reporting process. The second study explores whether the reputation incentive offered by a firm’s directorship has an impact on a firm’s CSR performance. I find that firms with a larger proportion of independent directors where the directorship is the most prominent are associated with better CSR performance. The positive effect of independent directors’ high reputation incentives on CSR performance is driven by better performance in CSR strengths rather than CSR concerns, and by better performance in both stakeholder CSR and third-party CSR. The effect is more pronounced in an environment where firms face less external pressure to perform CSR, and in firms with a less diverse board. Overall, my results suggest that independent directors have incentives to develop their reputation as a socially responsible director. The third study investigates the role of corporate reputation in enhancing the timeliness of external audits and earnings announcements. Changes in audit and financial reporting regulations have resulted in longer audit delay, leading to an increase in firms that announce earnings prior to audit completion, both of which have implications on the quality of financial information. I find that corporate reputation is negatively associated with audit report lag and the likelihood of firms announcing earnings after audit completion. I document important benefits in the form of timelier audits and earnings announcements derived from developing and maintaining a good corporate reputation.
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Khoo, Eunice
Monroe, Gary
Lim, Youngdeok
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PhD Doctorate
UNSW Faculty
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