Abstract. There has been a strong growth in accounting firms' provisions of nonaudit services to their audit clients. To date, however, there have been few studies into the determinants of this joint provision of audit and nonaudit services. One reason for the paucity of research is the lack of publicly available data with which to empirically examine relationships and test theories. However, recent legislation in the United Kingdom requires publication of nonaudit fees paid to a company's auditor, and this disclosure provides the data with which to investigate the joint provision of consultancy and audit services. A model is developed that seeks to explain a company's decision to hire nonaudit services from the auditor. The model argues that companies that face potentially high agency costs purchase relatively smaller amounts of nonaudit services from their auditor. High agency‐cost companies require independent audits in order to reassure investors and creditors; the provision of joint services, which increases the economic bonding of the auditor to the client, may jeopardize independence or the appearance of independence. The model is tested using data observations from 500 companies, and the results indicate that companies that have higher agency‐cost proxies are associated with smaller purchases of nonaudit services from their auditors.

Disclosures, Informational content, Abnormal returns, Trading volume

Previous empirical research has established that dividend changes are associated with significant abnormal returns. This association is rationalized on the basis that the dividend announcement acts as a signal of future earnings. Another body of research has documented the existence of intra-industry transfers of information where news about one firm is extrapolated to other companies in the same industry. Earnings information transfers have been found to be positive in nature, with good news about one company leading to stock price increases for rival firms. Linking dividend signaling and information transfer, tests were constructed to ascertain whether the dividend change of one firm is associated with the stock price performance of other companies in the same industry. The results indicate there is some small positive information transfer. The magnitude of information transfer is related to the degree of the dividend surprise, the recent dividend history of the other companies, and correlations in stock returns between the dividend announcer and the other companies. Information transfer is found to affect earnings and earnings growth estimates of the other firms and this leads to revisions in their stock prices.

The paper examines recent merger and takeover activity in the United Kingdom. Specifically, the impact of takeovers on shareholder returns and management benefits is analyzed, and some implications for the theory of the firm are drawn from the results. The research showed that mergers and takeovers resulted in benefits to the acquired firms' shareholders and to the acquiring companies' managers, but that losses were suffered by the acquiring companies' shareholders. The results are consistent with takeovers being motivated more by maximization of management utility reasons, than by the maximization of shareholder wealth.

In the 1960s and early 1970s many conglomerate companies were treated as the glamour shares of the stock market and they traded at high price-earnings ratios. One reason for this glamour status was the belief that these conglomerates had dynamic, entrepreneurial management and when this was injected into taken-over firms greatly increased efficiency and profits would ensue, which would ultimately be reflected in a superior share price performance. The current note examines this hypothesis by presenting the results of a research study into the actual stock market performance of conglomerate firms in the United Kingdom. Following Professors Weston, Smith and Shrieves (this REVIEW, 1972) the study uses a capital asset pricing model approach in measuring performance . Contrary to Weston et al. 's findings the current study found that conglomerates did not display superior risk-adjusted stock market performance. The findings are consistent, however, with other studies in the United States (Melicher and Rush, 1973; Brenner and Downes, 1979), as well as with previous studies into takeovers in Britain (Firth, 1976 and 1979) which showed no stock market gains resulting from making acquisitions.

Michael A. Firth, An Empirical Examination of the Applicability of Adopting the AICPA and NYSE Regulations on Free Share Distributions in the U.K., Journal of Accounting Research, Vol. 11, No. 1 (Spring, 1973), pp. 16-24

Abstract ABSTRACT: The paper examines the role and importance of auditor independence as perceived by various interested parties in the United Kingdom. A questionnaire postulating 29 auditor-client relationships was sent to a sample of both the preparers of and the users of financial statements. They were asked whether they thought auditor independence might be impaired for each relationship and what impact they thought this might have on investment and lending decisions. The results showed that non-independence was perceived by the respondents to impair investment and lending decisions. It was also found that there were significant differences in the perceptions of auditor independence, and the importance thereof, between the responses of the preparers of financial statements and the responses of the users of financial statements. The results showed that while the views of accountants working in professional practices agreed quite closely with the ethical guidelines on auditor independence published by the British Institutes of Chartered Accountants, the users of financial statements were much more skeptical of auditor independence.