Audit Market Concentration and Auditor Tolerance for Earnings Management<sup>*</sup>

Boone, Jeffery Paul; Khurana, Inder K.; Raman, K. K.

doi:10.1111/j.1911-3846.2011.01144.x

Cited by 136 publications

(139 citation statements)

References 44 publications

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“…In light of the findings of the GAO (2003GAO ( , 2008 studies, information regarding the relationship between auditor competition and audit quality is important to both regulators and audit market participants. Second, our study significantly extends recent research dealing with MSA-level competition (Kallapur et al 2010;Boone et al 2012) by investigating a more direct, ''bright line'' measure of audit quality-financial statement restatements. Overall, our study complements and extends a recent and growing debate among regulators and researchers about audit market competition and audit quality.…”

mentioning

confidence: 52%

“…They find that lower competition is associated with higher audit quality and that lower MSA-level competition is associated with higher audit fees. Second, Boone et al (2012) use a refined sample of firms that are likely to manage earnings, and find that audit clients are more likely to meet or beat earnings targets in areas of lower auditor competition. Although these studies find opposite results, they are important because they focus on auditor competition at the MSA level.…”

Section: Audit Competition and Audit Qualitymentioning

confidence: 99%

“…All of these factors suggest that the MSA level is the appropriate level for measuring auditor competition. The specific measure of auditor competition that we employ is derived from the Herfindahl index, which is an index that is commonly used in competition studies (GAO 2003(GAO , 2008Kallapur et al 2010;Boone et al 2012). This measure captures variation in the number of audit firms present in a local market and the distribution of audit clients among those firms.…”

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confidence: 99%

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Does a Lack of Choice Lead to Lower Quality?: Evidence from Auditor Competition and Client Restatements

2011

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SUMMARY:We examine the relationship between auditor competition and the likelihood of financial restatements that occur as a result of failures in the application of generally accepted accounting principles (GAAP). Policy makers and audit market participants have expressed concern that the current level of auditor competition is low, resulting in a negative impact on audit quality. However, we find that restatements are more likely to occur in metropolitan statistical areas (MSAs) that have higher auditor competition. The association between audit market competition and restatements is statistically and economically significant. Our finding of a positive relationship between the likelihood of restatement and audit market competition is relevant to the ongoing debate regarding audit quality and the concentration of audit markets.

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confidence: 52%

Section: Audit Competition and Audit Qualitymentioning

confidence: 99%

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confidence: 99%

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Does a Lack of Choice Lead to Lower Quality?: Evidence from Auditor Competition and Client Restatements

2011

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“…However, although there are quite a few studies on the consequences of audit market concentration on the quality of audited financial statements (e.g., Boone et al, 2012;Francis et al, 2012), and several studies providing descriptive insights about the French audit market (Broye, 2007;Piot, 2007;Piot, 2008), none empirically examined the link between joint audit, audit market concentration and the consequences of market concentration in terms of audit cost and audit quality.…”

Section: Audit Market Concentrationmentioning

confidence: 99%

Joint Audit: Issues and Challenges for Researchers and Policy-Makers

Ratzinger‐Sakel

Audousset-Coulier

Kettunen

et al. 2013

Accounting in Europe

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The publication of the European Commission Green Paper, "Audit Policy: Lessons from the Crisis" in October 2010, has stirred up a lively debate on the role of joint audits. This literature review identifies and evaluates, for the benefit of future research and regulators, existing evidence about joint audits. We find limited empirical support to suggest that joint audits lead to increased audit quality, but some empirical support to suggest that joint audits lead to additional costs. Overall, this paper indicates that joint audit should be seen as a mechanism that is embedded in a broader institutional context, and not be considered in isolation from other factors that might impact the audit market. The results indicate that various country-level characteristics are simultaneously at play. While joint audits can potentially enhance the audit market competition by allowing smaller audit firms to maintain larger market shares, the related impact on audit quality has not yet been clearly demonstrated and thus provides a promising avenue for future research.3

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“…Research on earnings management has been rather prolific (Zalata and Roberts, 2015;Kim and Park, 2014;Donelson, Mcinnis & Mergenthaler, 2013;Gao, 2013;Gerakos and Kovrijnykh, 2013, Wongsunwai, 2013, Boone, Khurana & Raman, 2012McGuire, Omer & Sharp, 2012;Zang, 2012;Haw, Ho and Li, 2011), yet when it comes to studying the impact of religious social norm of the firms' environment no silver bullets have been offered (Dyreng, Mayew and Williams, 2010;Grullon, Kanatas, Weston, 2010). This paper provides a missing link in the literature as it provides a plethora of empirical evidence of the importance of religion for earnings management, whilst it sheds, for the first time, light of the impact of the former on classification shifting.…”

Section: Introductionmentioning

confidence: 97%

Does Religion Matter for Earnings Management?

Boahen

Mamatzakis

2015

SSRN Journal

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This paper explores the nexus between earnings management and religiosity. It complements prior research on the impact of religious social norms of the firm's environment on earnings management practices. Using a sample of 11,105 U.S. firm-year observations between 2004 and 2013, we find that religiosity is negatively associated with the accruals-based method, but positively related to both real-activities and classification shifting. This suggests that religiosity could serve as a correction mechanism to accruals earnings management practices. However, managers in highly religious areas consider real-activities and classification shifting as ethically and morally appropriate. In addition, we interact religiosity measures with governance variables to provide evidence of the importance of religion in relation to board characteristics. As part of robustness analysis we examine the impact of religion in high and low religious areas, as well as in urban and rural areas. Our findings remain robust and argue in favour of the importance of religious social norms in earnings management.

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Audit Market Concentration and Auditor Tolerance for Earnings Management^*

Cited by 136 publications

References 44 publications

Does a Lack of Choice Lead to Lower Quality?: Evidence from Auditor Competition and Client Restatements

Does a Lack of Choice Lead to Lower Quality?: Evidence from Auditor Competition and Client Restatements

Joint Audit: Issues and Challenges for Researchers and Policy-Makers

Does Religion Matter for Earnings Management?

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Audit Market Concentration and Auditor Tolerance for Earnings Management*

Cited by 136 publications

References 44 publications

Does a Lack of Choice Lead to Lower Quality?: Evidence from Auditor Competition and Client Restatements

Does a Lack of Choice Lead to Lower Quality?: Evidence from Auditor Competition and Client Restatements

Joint Audit: Issues and Challenges for Researchers and Policy-Makers

Does Religion Matter for Earnings Management?

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Audit Market Concentration and Auditor Tolerance for Earnings Management^*