Posted by Colleen Honigsberg (Stanford Law School), Shivaram Rajgopal (Columbia Business School), and Suraj Srinivasan (Harvard Business School), on Thursday, January 4, 2018
Editor's Note: Colleen Honigsberg is an Assistant Professor at Stanford Law School; Shivaram Rajgopal is the Roy Bernard Kester and T.W. Byrnes Professor of Accounting and Auditing at Columbia Business School; and Suraj Srinivasan is the Philip J. Stomberg Professor of Business Administration at Harvard Business School. This post is based on their recent paper.
Stretching back to Central Bank v. First Interstate, [1] a series of Supreme Court opinions have limited shareholders’ ability to bring claims under Rule 10b-5 against auditors. Prior literature has noted the changes in auditor liability and questioned whether the current law provides auditors with efficient incentives (e.g., Park, 2017; Coffee, 2006; Partnoy, 2001). However, our paper, The Changing Landscape of Auditor Litigation and Its Implications for Audit Quality, is the first to provide empirical evidence that recent court opinions have led to declines in Rule 10b-5 liability exposure and have implications for audit quality.