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In order to create a larger sample, we also collected data regarding the financial year 2002. Our final sample therefore includes 91 observations from 46 different firms. According to our procedures, we only had one observation for the firm Gescartão given that we only found its corporate governance report for 2003 since the firm’s shares were listed in the main market (MCO) only in that year. However, we obtained for this same firm all the necessary 2002 auditing information from the firm’s listing prospectus and thus were able to avoid the loss of one observation. Such report was obtained from CMVM. Given the above, in the following analysis of the auditing reports the sample includes 46 firms and a total of 92 observations (two observations per firm), while for the remaining analyses we have 45 companies with two observations for each and a single observation for the firm Gescartão for the reasons explained earlier. We should clarify that only from 2002 onwards are corporate governance reports available so that, given the metho<strong>do</strong>logy and empirical model being used, we are not able to get a larger sample than the one used here. Our study, therefore, with the exception of financial and football club companies, for the reasons already explained, include all possible firms that are subject to regulation nr. 7/2001 (requirement for corporate governance reports) in the years 2002 and 2003. Regarding the industry structure of our sample, and according to FTSE classification, table 2 shows the distribution of firms by industry. We can observe that a total of 25 different industries are represented in the sample, the observations being quite dispersed among those industries. Nonetheless, the “Building Industry – Other”, “Paper” and “Computer Services” industries account for 34.8% of the total number of observations. If one adds “Chemical Industries-Commodities”, “Building and Building Materials” and “Retailers- Food and Drugs”, one finds that six industries (24% of the total number of sectors) include 25 firms (54.3% of the total number), so a degree of concentration in some industries is present. 19
5. Empirical results 5.1. Auditing characteristics Table 3 shows the distribution of firms per auditor, a distinction being made between the so-called “Big 4” auditors and the remaining ones. It can be observed that Big 4 auditors are responsible, directly or through subsidiaries, for about 70% of the audit reports in the two-year period (2002 and 2003). Within such auditing firms, one should mention the importance of Deloitte accounting for 45.7% of the total number of audit reports, although with a share that declined from 47.8% in 2002 to 43.5% in 2003. Such large share is partly due to the fact that Andersen’s activities in Portugal were merged with Deloitte’s in 2002. It should also be mentioned that (i) one of the Big 4 (KPMG) <strong>do</strong>es not show up in our sample 9 , (ii) the residual importance in the sample of Ernst & Young (it was the auditor of a single company – SAG - during the two-year period), and (iii) the remaining two Big 4 (Deloitte and PricewaterhouseCoopers) were responsible for more than two thirds of the total number of observations, i.e., 63 auditing reports out of a maximum possible total of 92. Among the non-Big 4, two of these are subsidiaries of international firms - BDO and Grant Thornton — and are responsible for 4 and 3 audits, respectively, a larger sample presence than two of the Big 4 (Ernst & Young and KPMG). In Table 4 we record the distribution of audit opinions according to whether these are “clean” or “modified” and by auditor type (Big 4 or not). One can observe that the number of firms that received modified opinions was the same in each of the two years (24 firms), but the modified opinions were redistributed during the two-year period as in 2003 the non-Big 4 increased the number of modifications (in 3 cases) at the same time that the Big 4 reduced theirs by the same number. The number of clean opinions (22) was 9 In an information report filed to CMVM in September 17, 2004, the board of EDP- Electricidade de Portugal, announced that it had agreed with KPMG Portugal, from October 2004 onwards, the provision of external auditing services. 20
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Page 3 and 4: BOARD STRUCTURE AND MODIFIED AUDIT
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Page 15 and 16: Pr ob( OPIN = 1) = F( α + β NUM +
Page 17 and 18: Asset profitability (ROA) is introd
Page 19: Given the above, our first step in
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Page 25 and 26: The extant literature (e.g., Beasle
Page 27 and 28: modified opinion, the difference be
Page 29 and 30: (p-value=0.34), at the same time th
Page 31 and 32: percentage of non-executive board m
Page 33 and 34: Klein (2002a) finds evidence that a
Page 35 and 36: corporate governance reports of lis
Page 37 and 38: 26 Mota—Engil, SGPS, SA Mota-Engi
Page 39 and 40: Bradshaw, M. T., S. A. Richardson a
Page 41 and 42: Dechow, P.M. and D. J. Skinner (200
Page 43 and 44: Gaver, J. J., K. M. Gaver and J. R.
Page 45 and 46: Kang, S. and K. Sivaramakrishnan (1
Page 47 and 48: Nelson, M. W., J. A. Elliott and R.
Page 49 and 50: Teoh, S. H., I. Welch and T. J. Won
Page 51 and 52: Figure 1 - Relation between the boa
Page 53 and 54: Table 2 Sample Industry Distributio
Page 55 and 56: Variable Mean Std Dev. Quantitative
Page 57 and 58: Table 7 Mean (median) figures of va
Page 59 and 60: Table 10 Logistic regression result
Page 61 and 62: Variable Expected sign Constant ? N

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