Effects of Audit Quality on Earnings Management and Cost of Equity Capital: Evidence from India

Houqe, Nurul; Ahmed, Kamran; Zijl, Tony van

doi:10.2139/ssrn.1967293

Cited by 5 publications

(9 citation statements)

References 56 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The test results imply that continued audit by a Big 4 audit firm increases earnings quality progressively. The results of this research support the results of previous research (Alzoubi, 2016;Houqe et al, 2015;Teoh and Wong, 1993;Zakaria and Daud, 2013) that concludes that auditor size has a positive influence on earnings quality. The measurement of earnings quality in this research is different from the measurement of earnings quality in previous research.…”

Section: Discussionsupporting

confidence: 89%

“…The measurement of earnings quality in this research is different from the measurement of earnings quality in previous research. Measurement of earnings quality in this research is composed of the attributes of persistence and predictability, while in previous research, earnings quality is measured by accrual quality, including discretionary accruals (Alzoubi, 2016;Houqe et al, 2015) and earning response coefficient (Teoh and Wong, 1993;Zakaria and Daud, 2013). The results of this research support the explanation that Big 4 auditors possess better audit resources than non-Big 4 auditors.…”

Section: Discussionmentioning

confidence: 99%

“…Results of research by Alzoubi (2016) showed that the level of earnings management is significantly lower for companies that use the Big 4 firms compared to those that use non-Big 4 firms. Houqe et al, (2015) found proof that companies that hire high-quality auditors in proxy with auditor size Big 4 have a negative influence on the earnings quality in proxy with discretionary accruals and income smoothing, which means that being audited by Big 4 auditors makes the earnings quality higher. The Big 4 auditors have greater audit quality compared to non-Big 4 auditors with the argument that the Big 4 auditors possess greater staff quality, knowledge, technical experience, capacity, and reputation compared to non-Big 4 auditors.…”

Section: Auditor Sizementioning

confidence: 98%

“…Auditor size indicates the large scale income and organization of the public accountant firm, which is now called Big 4 (including its affiliation), comprising PricewaterhouseCoopers (PwC), Deloitte Touche Tohmatsu (Deloitte), Ernst and Young (EY), and Klynveld Peat Marwick Goerdeler KPMG). Previous research had documented the correlation between audit quality being measured by a measurement proxy of a Big 4 auditor (Al-Thuneibat et al, 2011;Alzoubi, 2016;Francis and Wang, 2008;Houqe et al, 2015;Kabir et al, 2011;Wang et al, 2014;Zakaria and Daud, 2013) and the earnings quality measured by a certain proxy such as earnings response coefficient (Alzoubi, 2016;Houqe et al, 2015;Teoh and Wong, 1993;Wang et al, 2014;Zakaria and Daud, 2013), discretionary accruals (Alzoubi, 2016), and abnormal accruals (Francis and Wang, 2008;Wang et al, 2014). The Big 4 auditors have a better audit quality than small or non-Big 4 auditors arguably because large audit firms have greater resources, knowledge, technical experience, capacity, and reputation compared to small audit firms.…”

Section: Auditor Sizementioning

confidence: 99%

See 3 more Smart Citations

Effect of Audit Quality on Earnings Quality: Evidence From Indonesia Stock Exchange

Sumiadji

Chandrarin²,

Subiyantoro³

2018

IJFR

View full text Add to dashboard Cite

This research was conducted to test the effect of audit quality on earnings quality. Its observed data consisted of 116 annual data of manufacturing companies listed in the Indonesia Stock Exchange within 2011-2014. The proxies of audit quality are auditor size, audit tenure and audit specialization. The earnings quality was formed from the attributes of accrual quality, persistence, predictability, and income smoothing. The analysis techniques for this research involved (1) an confirmatory factor analysis to form the earnings quality and (2) multiple regression analysis to test the effect of the auditor size, audit tenure and audit specialization on earnings quality. Analysis results showed that earnings quality is formed by the attributes of persistence and predictability. Research results showed that auditor size and audit tenure have effect on earning quality, while audit specialization do not.

show abstract

Section: Discussionsupporting

confidence: 89%

Section: Discussionmentioning

confidence: 99%

Section: Auditor Sizementioning

confidence: 98%

Section: Auditor Sizementioning

confidence: 99%

See 2 more Smart Citations

Effect of Audit Quality on Earnings Quality: Evidence From Indonesia Stock Exchange

Sumiadji

Chandrarin²,

Subiyantoro³

2018

IJFR

View full text Add to dashboard Cite

show abstract

“…Specifically, only 22.37 per cent of firm-year observations are audited by Big 4 auditors' affiliates, which is significantly lower than these auditors' presence in most developed countries such as the United States, the UK and developing countries, such as Malaysia and Singapore. This estimate is consistent with prior studies on the Indian capital market (Johl et al, 2016;Houqe et al, 2017).…”

Section: Arj 324supporting

confidence: 91%

Gender diversity on audit committees and its impact on audit fees: evidence from India

Miglani

Ahmed

2019

ARJ

Self Cite

View full text Add to dashboard Cite

Purpose The purpose of this study is to examine the relationship existing between gender diverse (women directors) audit committees and audit fees. Design/methodology/approach The authors use a sample of 200 listed Indian firms over a four-year period (2011-2014). Ordinary least squares regression is used to assess whether and how the presence of women directors on audit committees affects the fee paid to the external auditor in India. To deal with the self-selection bias, the authors use a two-stage model developed using Heckman’s (1976) method. Findings The results show a significant positive relationship between the presence of a woman financial expert on the audit committee and audit fees after controlling for a number of firm-specific and governance characteristics and potential endogeneity with the propensity-matching score analysis. From the demand-side perspective of audit pricing, the results indicate that women financial experts on audit committees increase the need for assurance provided by external auditors. Using interaction terms, the authors find that women with financial expertise on an audit committee have a stronger association with audit fees as entity becomes more complex. Research limitations/implications The findings suggest that audit committees with women financial experts are likely to demand higher audit quality, ceteris paribus. Practical implications Gender of the financial expert is critical to the audit committee’s effectiveness. The findings of this study have implications for the composition of an audit committee in a firm. Originality/value This study contributes to the extant literature by examining the less-researched topic of the association between the women representation on audit committees and audit fees. It also offers further empirical evidence that will influence the debate on the importance of gender diversity in corporations.

show abstract

Impact of real earnings management on earnings persistence – evidence from India

Potharla

2022

IJOEM

View full text Add to dashboard Cite

PurposeThe present study aims to examine the relationship between real earnings management and earnings persistence and also to test how the group affiliation of the firms influences this relationship.Design/methodology/approachThe study draws the sample of listed non-financial firms in the Indian market from the year 2011 to 2018 and applies panel least squares regression with industry and year fixed effects. Future performance of a firm is measured by one year leading value of return on assets. The interaction term of real earnings management and return on assets is used to measure the impact of real earnings management on earnings persistence. The firm-specific controlling variables are also included in the empirical model. The robustness of the results is tested by sub-dividing the sample into group affiliated and non-group affiliated firms.FindingsThe findings of the study reveal that opportunistic earnings management has a significant impact on earnings persistence when real earnings management is measured through abnormal increase in operating cash flows and abnormal reduction in discretionary expenditure. On the other hand, signalling earnings management has a significant impact on earnings persistence when real earnings management is measured through abnormal increase in the level of production. The results also reveal that REM has more negative implications on group affiliated firms compared to non-group affiliated firms supporting the theory of entrenchment effect.Originality/valueThis is the first study in the Indian context which tests the implications of real earnings management on earnings persistence by using three alternative measures of real earnings management. The study contributes to the existing literature on the implications of real earnings management in emerging markets like India.

show abstract

Effects of Audit Quality on Earnings Management and Cost of Equity Capital: Evidence from India

Cited by 5 publications

References 56 publications

Effect of Audit Quality on Earnings Quality: Evidence From Indonesia Stock Exchange

Effect of Audit Quality on Earnings Quality: Evidence From Indonesia Stock Exchange

Gender diversity on audit committees and its impact on audit fees: evidence from India

Impact of real earnings management on earnings persistence – evidence from India

Contact Info

Product

Resources

About