The effect of litigation risk on the quality of audits: evidence from cross-listed UK firms

Abstract

This thesis investigates whether cross-listing drives audit effort and results in higher-quality audits owing to a greater exposure to litigation risk in the US. I use new measures of audit effort taking advantage of the new auditor’s report using a sample of UK firms. Taking various types of endogeneity into account, the results are inconsistent with higher litigation driving audit effort in cross-listed UK firms. Furthermore, the finding of lower reporting quality in cross-listed firms is inconsistent with the bonding mechanism.