The Effect of Audit Quality on Earnings Management
Citations
3,298 citations
2,633 citations
Cites background from "The Effect of Audit Quality on Earn..."
...With few exceptions,75 studies suggest that firms with Big-X auditors76 have significantly lower discretionary accruals than firms with non-Big-X auditors (Becker et al., 1998; DeFond and Subramanyam, 1998; Francis et al., 1999; Kim et al., 2003)....
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...With few exceptions, studies suggest that firms with Big-X auditors have significantly lower discretionary accruals than firms with non-Big-X auditors (Becker et al., 1998; DeFond and Subramanyam, 1998; Francis et al., 1999; Kim et al., 2003)....
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2,140 citations
1,553 citations
Cites methods from "The Effect of Audit Quality on Earn..."
...The most frequently used measures are based on the Jones (1991) discretionary accruals (DAC) model (e.g. Becker et al., 1998; Francis et al., 1999)....
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1,429 citations
Cites background from "The Effect of Audit Quality on Earn..."
...4 Becker et al. (1998) also report lower discretionary accruals for Big-6-audited companies, though their analysis is based on a smaller sample from the period 1989–1992, and a more limited analysis of time periods, industry sectors, firm size, and alternative specifications of discretionary accruals models....
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References
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7,362 citations
"The Effect of Audit Quality on Earn..." refers background or result in this paper
...With respect to studies that examine discretionary accruals (e.g., Healy 1985; DeAngelo 1986; Jones 1991; DeFond and Jiambalvo 1994; Dechow, Sloan, and Sweeney 1995; Subramanyam 1996), our results suggest that tests may be more powerful if they control for cross-sectional variation in audit quality....
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...En ce qui a trait aux 6tudes portant sur les 616ments discretionnaires (par exemple, Healy, 1985 ; DeAngelo, 1986 ; Jones, 1991 ; DeEond et Jiambalvo, 1994 ; Dechow, Sloan et Sweeney, 1995 ; et Subramanyam, 1996), les resultats obtenus ici donnent a penser que la puissance des tests pourrait etre superieure s'ils permettaient de controler la variation transversale dans la quality de la verification....
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6,217 citations
"The Effect of Audit Quality on Earn..." refers methods in this paper
...Comparability across cash fiow deciles is desirable because the model in Jones (1991), which we use to estimate discretionary accruals, may be sensitive to extreme measures of cash fiows (Dechow et al. 1995)....
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5,244 citations
"The Effect of Audit Quality on Earn..." refers background in this paper
...However, high leverage is also associated with financial distress (Beneish and Press 1995; Ohlson 1980)....
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4,969 citations
"The Effect of Audit Quality on Earn..." refers background or result in this paper
..., and theory suggests that audit firm size is a proxy for audit quality (DeAngelo 1981; Dopuch and Simunic 1982)....
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...Theoretical support for such a quality differentiation is provided in DeAngelo 1981, who demonstrates analytically that larger audit firms have greater incentives to detect and reveal management misreporting. Because Big Six firms are larger than their competitors, it follows from DeAngelo's analysis that they are of higher quality. Several empirical studies have documented evidence consistent with DeAngelo's analysis. Teoh and Wong (1993) document higher earnings response coefficients for clients of Big Six auditors as compared to clients of non-Big Six auditors. Several studies have also documented an audit fee premium attributed to Big Six auditors (e.g., Craswell, Francis, and Taylor 1995). In addition, St. Pierre and Anderson (1984) find a lower incidence of litigation among Big Six auditors compared with non-Big Six auditors. DeFond and Jiambalvo (1991) consider errors and irregularities as a form of earnings management and hypothesize that clients of Big Six firms are less likely to have errors or irregularities....
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...Theoretical support for such a quality differentiation is provided in DeAngelo 1981, who demonstrates analytically that larger audit firms have greater incentives to detect and reveal management misreporting. Because Big Six firms are larger than their competitors, it follows from DeAngelo's analysis that they are of higher quality. Several empirical studies have documented evidence consistent with DeAngelo's analysis. Teoh and Wong (1993) document higher earnings response coefficients for clients of Big Six auditors as compared to clients of non-Big Six auditors....
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...Theoretical support for such a quality differentiation is provided in DeAngelo 1981, who demonstrates analytically that larger audit firms have greater incentives to detect and reveal management misreporting. Because Big Six firms are larger than their competitors, it follows from DeAngelo's analysis that they are of higher quality. Several empirical studies have documented evidence consistent with DeAngelo's analysis. Teoh and Wong (1993) document higher earnings response coefficients for clients of Big Six auditors as compared to clients of non-Big Six auditors. Several studies have also documented an audit fee premium attributed to Big Six auditors (e.g., Craswell, Francis, and Taylor 1995). In addition, St. Pierre and Anderson (1984) find a lower incidence of litigation among Big Six auditors compared with non-Big Six auditors. DeFond and Jiambalvo (1991) consider errors and irregularities as a form of earnings management and hypothesize that clients of Big Six firms are less likely to have errors or irregularities. Results support the hypothesis only when fraudulent firms are excluded from their sample. DeFond and Jiambalvo (1993) show that auditor-client disagreements result from incentives to manage earnings and are more likely to occur when firms have Big Six auditors....
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...Theoretical support for such a quality differentiation is provided in DeAngelo 1981, who demonstrates analytically that larger audit firms have greater incentives to detect and reveal management misreporting. Because Big Six firms are larger than their competitors, it follows from DeAngelo's analysis that they are of higher quality. Several empirical studies have documented evidence consistent with DeAngelo's analysis. Teoh and Wong (1993) document higher earnings response coefficients for clients of Big Six auditors as compared to clients of non-Big Six auditors. Several studies have also documented an audit fee premium attributed to Big Six auditors (e.g., Craswell, Francis, and Taylor 1995). In addition, St. Pierre and Anderson (1984) find a lower incidence of litigation among Big Six auditors compared with non-Big Six auditors....
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