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AbstractThis study examines whether comment letters have spillover effects on audit fees. By examining listed companies in China, we find that the frequency of comment letters received by peer firms is positively associated with focal firms' audit fees. The spillover effect is stronger when companies have the same audit firm as their peers and the comment letter is longer, asks more questions, is more negative, or contains more risk information. Furthermore, the effect is more pronounced (weaker) for companies with higher growth (audited by Big Four audit firms). Our findings suggest that comment letters have regulatory effectiveness, which influences companies' and auditors' behavior on a large scale.

AbstractResearch Question/IssueWe argue that findings regarding litigation risk in the United States are not applicable in the Chinese context because Chinese firms are more dependent on debt financing for their operations compared with US firms. Thus, we raise the following research questions to test potential differences: Is litigation risk associated with firm performance? Does effective internal control of governance improve the performance of lawsuit firms? Do financial analysts improve the performance of lawsuit firms? Does debt financing mediate the effect of litigation risk on firm performance?Research Findings/InsightsOur results indicate that litigation claims for large monetary amounts are negatively associated with firm performance, whereas internal governance and analyst following moderate the negative effects of litigation risk. We further examine the mediating effect of debt financing on the relationship between litigation risk and firm performance, finding that litigation risk is negatively associated with firm performance through excessive leverage, increased cost of debt, reduced bank borrowing, and trade credit.Theoretical/Academic ImplicationsBy empirically testing the mediation effect of debt financing, this study enhances the understanding of the underlying causes of the association between a firm's litigation risk and its performance.Practitioner/Policy ImplicationsThe findings will help firm managers to review litigation risks, better understand the economic mechanisms of litigation risk, and promote risk control to regulate their behaviors. We also find that financial analysts can correct the adverse effects of litigation risk; thus, we recommend that the financial analyst profession be further normalized.

AbstractWe explore the impact of overpaid dividends on future stock price crash risk. Using a dataset of 2662 firms with 15,416 firm‐year observations of China's A‐share listed firms, our result indicates that overpaid dividends are positively related to the likelihood of future stock price crash risk. The results further suggest that high‐quality corporate governance and financial analyst coverage can moderate the positive effect of overpaid dividends on the crash risk. Moreover, continuous overpaid dividends and state‐owned enterprises with overpaid dividends have a stronger impact on the crash risk, and overpaid dividends are significantly affected by their peer firms.