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appropriate D&O insurance coverage, the institutional investor in the insurance business
relationship has an information advantage, which enhances the monitoring mechanism.
Thus, the auditor charges lower audit fees for the client who has an institutional investor
in the insurance business relationship. On the other hand, when the firm purchases excess
D&O insurance coverage, due to conflicts of interest, institutional investors will be afraid
of losing current or potential business if they oppose management’s decisions and are less
likely to deter aforementioned opportunistic behavior, which increases the firm’s litigation
risk. Therefore, the auditor charges higher audit fees instead.
The third article “In-House Provision of Corporate Services: The Case of Property-
Casualty Insurers and In-House Actuarial Loss Reserve Certification” in the field of
accounting by Weiss, Cheng, and Lin investigates the relationship between managerial
discretion in U.S. Property-Casualty (P-C) accounting reports and the use of an in-house
or Appointed Actuary to certify loss reserves. Using loss reserving errors as the measures
of managerial discretion, they find that it is important to distinguish between healthy and
weak insurers in the analysis because these two types of insurers have different incentives
to earnings management. They also find that in terms of certifying loss reserves for both
weak and healthy insurers, in-house actuaries and Appointed Actuaries are both associated
with more under-reserving than when an external actuary is used, although the degree of
under-reserving is greater for weak insurers. Additionally, the enactment of the Sarbanes-
Oxley Act (SOX) leads to more conservative financial reporting for weak publicly-traded
P-C insurers using external actuaries but not for weak publicly-traded P-C insurers using
in-house actuaries.
The fourth article “The Effects of Environmental Information Disclosure on
Investors’ Perceptions of Earnings Quality: The Difference in Managerial Ownership
Structure” in the field of accounting by Li, Chi, and Chen explores whether environmental
information disclosure affects investors’ perceptions of earnings quality using a sample
of companies listed on Taiwan Stock Exchange or Taipei Exchange for the period 2012-
2019. The empirical results reveal that investors’ perceptions of higher earnings quality
are obvious when firms disclose a higher level of environmental information. Furthermore,
the positive relationship between environmental information disclosure and investors’
perceptions of earnings quality is more pronounced in firms with a higher level of
managerial ownership. Altogether, these results suggest that environmental information
disclosure matters to market participants and that a convergence of interests occurs in the
Taiwan capital market.