The dissertation examines IPO underpricing and long-term performance to assess the use of industry specialization as a differentiation strategy by audit firms and underwriters. Prior studies indicate that prestigious auditors or underwriters (e.g., Big 6 auditors) are associated with IPO underpricing. I extend existing literature by incorporating market share as a refined measure of auditor (underwriter) reputation. In particular, I define a differentiated auditor (underwriter) as the market leader that possesses significantly higher market share than their competitors in the client industry. I hypothesize that the impact of auditor (underwriter) reputation in the IPO setting depends on whether the audit firm (underwriter) has successfully differentiated itself from competitors within client industries. My results show that as audit firm (underwriter) industry market share increases without differentiation, the IPO underpricing increases. It appears that this group of auditors (underwriters) intentionally engages in high-risk IPOs in order to gain fee advantages. In contrast, differentiated auditors (underwriters) are related to lower IPO underpricing because their reputation assist in reducing information asymmetry between issuers and investors. My study is important because it shows that the benefits previously thought to be attributable to a very large set of auditors and underwriters stems primary

I examine factors influencing accounting firms' and their clients' decisions to pursue an auditing vs. consulting relationship. I employ the Sarbanes Oxley Act (SOX) prohibition on providing both services to the same clients as a natural experiment. Because Deloitte & Touche was the only Big 4 firm to retain its consulting division post-SOX, I compare Deloitte's client switch and retention decisions to those made by its direct competitors. In this context, I investigate how the decision to continue or terminate an audit relationship is influenced by auditor industry specialization, the historical provision of auditor-provided consulting services and the likelihood that the client will require consulting services in the future. I find that there is a preference for auditing when the auditor is a specialist in the client's industry, and there is a preference for consulting when the auditor provided consulting services in the past and the client is likely to require consulting services in the future. I also report empirical evidence on audit effectiveness and efficiency in cases where the auditor and its client discontinued the audit in order to maintain a consulting relationship. Although there was no impact on audit effectiveness, the auditor switches reduced efficiency as evidenced by significantly higher audit fees. This study is relevant to the current audit environment because public accounting firms that spun-off their consulting divisions around the enactment of SOX are in the process of rebuilding their consulting practices and must now choose between providing audit and consulting services to their clients. It may also be pertinent to European policy makers who are currently considering a proposal to limit auditors' ability to jointly offer audit and consulting services to the same client.

隨著銀行業管制的解除，新銀行的開放設立使會計師在銀行業的審計市場擴大許多。銀行業受法令規範的程度較高，業務種類繁雜且多半與現金有關，其查核程序和其他產業不盡相同。Eichensecher & Danos (1981)的研究指出當客戶產業受規範的程度愈高或在資本市場的活躍程度愈高，會計師在查核這類客戶時規模經濟愈大，審計市場的集中度也就愈高。Hogan & Jeter (1999)則發現審計市場的產業集中程度，會隨著時間的經過而增加；而會計師事務所審計集中程度，在客戶為受管制的產業、較具集中度的產業與快速成長的產業中較高；但在具有高訴訟風險的產業中較低。 本研究欲探討會計師在查核銀行業時，審計市場集中度是否因產業的特殊性而有所不同。以民國八十一年至八十八年之上市公司為研究對象，並進行迴歸分析。依據本研究之結果，可獲得以下的結論： 一、客戶所處產業受管制程度與會計師事務所審計市場集中度不呈顯著關係。 二、時間因素與會計師事務所審計市場集中度呈正相關。 三、在受管制之銀行業中，管制與時間因素之交互作用與會計師事務所審計市場集中度呈正相關。 / With deregulation in the banking industry, newly established commercial banks enlarged the CPA’s audit market. The banking industry is highly regulated by laws and has multiple operating activities related with cash. Therefore, the audit processes are different from other industries. Based on the research of Eichensecher & Danos in 1981, the CPA-firm concentration was a positive function of the degree of client-industry regulation and capital market activity. Hogan & Jeter in 1999 concluded that levels of concentration had increased over time. Auditor concentration levels are higher in regulated industries, in more concentrated industries and in industries experiencing rapid growth, but lower in industries with a high risk of litigation. The purpose of this study is to answer the question whether auditor concentration levels in the banking industry are different from those in other industries. By using regression, the firms listed in Taiwan Stock Exchange for the period from 1992 to 1999 are investigated. Based on this research, the following conclusions are reached: 1.The relationship between the level of regulation on client's industry and auditor concentration is not significant. 　2.The relationship between time factor and auditor concentration is positive. 　3.The interaction of regulation and time factors is positively related with auditor concentration.

近年全球產業競爭日趨激烈，我國國內專利訴訟亦日漸增加。加上我國財務會計準則公報第37號「無形資產之會計處理準則」及第35號「資產減損之會計處理準則」生效後，企業需要每年對專利權資產進行減損測試，使得國內專利權評價更顯複雜，同時亦產生較多盈餘操縱空間，導致專利權資訊之不確定性增加，間接降低財務報表資訊品質。為了增加財務報表使用者對於報表資訊之信賴，企業需要藉由慎選查核會計師以達到賦予財務報表公信力的目的，本研究首先分析近十年財務報表揭露之專利權資訊概況，接著探討其金額重大性與企業選任會計師決策之關聯。 實證結果顯示企業專利權金額重大性越高，越傾向於委任專長會計師事務所（含大型事務所、產業專長與專利權科目專長會計師事務所）查核財務報表，且專利權金額重大性之顯著，主要來自於第35號公報生效後之效果。 / As world competitions within industry strengthen, patent-related law suits have also increased these days. After the adoption of TSFAS No. 37 and No. 35, Taiwanese companies need to test patent impairment every year, which makes asset valuation complicated and increases patent information uncertainty. While bringing more room for earnings management, it also reduces financial reporting quality. To enhance users’ confidence, management needs to choose auditors of higher credibility. This study first analyzes patent disclosure information of publicly listed Taiwanese companies for the latest 10 years, and examines how the materiality of patent assets influences companies’ choice of specialist auditors. We find that the more important the materiality of a company’s patent assets, the more likely it will choose to hire a specialized auditor, being a large firm, an industry specialist, or an account specialist auditor. The significant positive association between patent materiality and choices of specialized auditors is mainly effected by the adoption of TSFAS No. 35.

This dissertation investigates how economically-comparable peer firms can be used to obtain inferences about a company’s accounting quality in two different research settings. The first Chapter examines whether auditor industry specialization, measured using auditor market share by industry, improves audit quality. After matching clients of specialist and non-specialist auditors according to industry, size and performance, there are no significant differences in audit quality between these two groups of auditors. In addition, this Chapter uses two analyses that do not rely primarily on matched samples. First, examining a sample of Arthur Andersen clients that switched auditors in 2002, there is no evidence of industry-specialization effects following the auditor change. Second, using a simulation approach, this study shows that client characteristics, and particularly client size, influence the observed association between auditor industry specialization and audit quality. Overall, these findings do not imply that industry knowledge is not important for auditors, but that the methodology used in extant studies examining this issue may not fully parse out the effects of auditor industry expertise from client characteristics. The second Chapter examines whether account-level expectation models for analytical audit procedures can be enhanced by using information from economically-comparable peer firms. This Chapter assesses the effectiveness of three main types of expectation models, with and without including information from peer firms: heuristic, time-series, and industry cross-sectional models. Information from peer firms improves the accuracy of all models and improves the detection power of time-series and industry cross-sectional models. Comparing between models, one-period heuristic models are generally unreliable, and industry cross-sectional models can be more effective than time-series models. These findings may help auditors of public companies and financial analysts in selecting expectation models and finding peer firms to assess the reasonability of a company’s financial information at the account-level.

This dissertation investigates how economically-comparable peer firms can be used to obtain inferences about a company’s accounting quality in two different research settings. The first Chapter examines whether auditor industry specialization, measured using auditor market share by industry, improves audit quality. After matching clients of specialist and non-specialist auditors according to industry, size and performance, there are no significant differences in audit quality between these two groups of auditors. In addition, this Chapter uses two analyses that do not rely primarily on matched samples. First, examining a sample of Arthur Andersen clients that switched auditors in 2002, there is no evidence of industry-specialization effects following the auditor change. Second, using a simulation approach, this study shows that client characteristics, and particularly client size, influence the observed association between auditor industry specialization and audit quality. Overall, these findings do not imply that industry knowledge is not important for auditors, but that the methodology used in extant studies examining this issue may not fully parse out the effects of auditor industry expertise from client characteristics. The second Chapter examines whether account-level expectation models for analytical audit procedures can be enhanced by using information from economically-comparable peer firms. This Chapter assesses the effectiveness of three main types of expectation models, with and without including information from peer firms: heuristic, time-series, and industry cross-sectional models. Information from peer firms improves the accuracy of all models and improves the detection power of time-series and industry cross-sectional models. Comparing between models, one-period heuristic models are generally unreliable, and industry cross-sectional models can be more effective than time-series models. These findings may help auditors of public companies and financial analysts in selecting expectation models and finding peer firms to assess the reasonability of a company’s financial information at the account-level.

In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Securities and Exchange Commission is required to propose and adopt clawback rules. After a financial statement restatement, a clawback is utilized to recover incentive compensation that was previously paid out to a manager based on the misstatement. My study investigates financial reporting executives' (FREs) decision-making after the external auditors have proposed a restatement that will lead to a clawback. I performed a web-based experiment that was electronically distributed to sixty FRE participants (i.e., CFOs, controllers, and treasurers) and manipulated executive compensation structure (i.e., a higher percentage of total compensation based on incentives or a lower percentage of total compensation based on incentives) and auditor industry specialization (i.e., industry-specialist or non-industry specialist) in a clawback environment. I hypothesized that higher incentives or the presence of a non-specialist auditor would cause FREs to be less likely to agree with an auditor's proposed restatement, more likely to involve the external auditor's national office, and more likely to request termination of the external auditors. Further, I posited that the two factors would interact for each of the three dependent variables. As predicted, my results reveal that FREs are less likely to agree with the restatement due to loss aversion when a higher proportion of their pay is incentive-based; however, auditor specialization does act to mitigate the influence of loss aversion by increasing their likelihood to accept the restatement. Additionally, I find that FREs are highly likely to request the involvement of the national office and very unlikely to request termination of the auditors across all conditions. In consideration of the upcoming clawback rules, this is a timely study that makes important contributions. First, I find an unintended negative consequence of clawback regulation, as my results indicate that clawbacks may exacerbate aggressive financial reporting decisions by FREs during a restatement negotiation. Further, I find that specialist auditors can act as effective monitors of FREs' behaviors in a clawback environment. Last, my results provide evidence for firms regarding the influence of executive compensation structures on FREs' decision-making in a clawback setting. / Ph. D.

本研究主要探討產業專家會計師事務所對其受查企業管理當局自願性盈餘預測品質之影響，文中自願性盈餘預測之品質分別就盈餘預測之發布意願、揭露盈餘預測方式之精確性、盈餘預測之準確性、盈餘預測之穩健性四部分來探討。本研究係以2009年之S&P 500公司作為研究對象，樣本期間為2000年至2009年。實證結果顯示：產業專家會計師事務所之受查企業相較於非產業專家會計師事務所之受查企業，較有意願去發布管理當局自願性盈餘預測，也傾向於以較具體精確之方式去揭露盈餘預測，且其盈餘預測之準確性亦較高，但其與受查企業管理當局自願性盈餘預測之穩健性則無顯著關聯性。顯示產業專家會計師事務所與其受查企業管理當局自願性盈餘預測之間存在關聯性，產業專家會計師事務所能提升其受查企業管理當局自願性盈餘預測之品質。 / This paper examines the effects of auditor industry specialization on voluntary management earnings forecasts. This paper uses the incidence of issuing voluntary management earnings forecasts, forecast specificity, forecast accuracy, and forecast conservatism to measure the quality of voluntary management earnings forecast. Based on the sample of 2009 S&P 500 companies spanning from 2000 to 2009, the results indicate that firms audited by industry specialist are more likely to issue earnings forecasts, and their forecasts are more specific. In addition, these forecasts tend to be more accurate. Taken together, the empirical evidence is consistent with the prediction that the auditor industry specialization is associated with voluntary management earnings forecasts; that is, auditor industry specialization helps to enhance the quality of voluntary management forecasts.

In the first essay, I examine the association between auditor industry specialization and earnings management choices. Prior research suggests that industry specialist auditors constrain accounting-based earnings management. But such actions may cause client companies to seek alternative means to manage earnings. Specifically, companies that hire industry specialist auditors may alter operating decisions to meet earnings targets, referred to as real activities manipulation. This essay investigates whether clients of industry specialist auditors that have an incentive to manage earnings are constrained from managing earnings through accruals manipulation and, therefore, are more likely to engage in real activities manipulation. Further, I examine whether operating performance declines for firms suspected of real activities manipulation. My findings indicate that clients of industry specialist auditors with incentives to manage earnings have lower absolute value of accruals relative to firms with incentives to manage earnings that do not hire industry specialist auditors. These clients of industry specialist auditors are also more likely to engage in real activities manipulation, suggesting this is a possible unintended consequence of hiring an industry specialist auditor. I also document evidence that firms suspected of real activities manipulation have lower future operating performance relative to firms not suspected of real activities manipulation. In the second essay, I examine the association between the tightness of accounting standards and earnings management choices. Prior studies suggest that managers switch from accounting-based earnings management to real activities manipulation in response to tightening accounting standards. My study investigates this line of reasoning. I develop an analytical model and conduct an experimental examination of the effect of flexibility of accounting standards under different institutional environments. I find that managers switch from accounting-based earnings management to real activities manipulation with tightening accounting standards only when the institutional investors have a short-term investment horizon. In contrast, when managers are monitored by institutional investors with a long-term investment horizon, they do not engage in such behavior.

本文以2005年至2014年間中華人民共和國上海及深圳上市公司為研究對象，參照Beck and Mauldin (2014)衡量審計委員會與財務長之間相對影響力之模式，從公司治理觀點分析選任個人層級及事務所層級之產業專家會計師，是否與審計委員會相較於財務主管較具有影響力有關聯性，並參考過去發展的文獻，以多種衡量產業專家之方法執行敏感性分析。本研究結果顯示，當企業之審計委員會相較於財務主管之相對影響力較大時，與個人層級之產業專家及同時為個人層級及事務所層級之產業專家會計師具有顯著正相關、與會計師事務所層級之產業專家呈現不顯著相關，故可推論，審計委員會相對較有影響力時會傾向選擇會計師個人產業專家。 / The primary objective of this thesis is to examine whether and how the relative power of the CFOs to audit committee affects the choice of auditor’s industry specialization, measured as firm level and partner level. We focus my analyses on a sample of listed firms in China during 2005-2014. We follow the measure of the relative power of CFO and audit committee by Beck and Mauldin (2014) to test my predictions. My main findings can be summarized as follows. First, the thesis finds evidence that firms are more likely to choice firm-level audit experts when its CFO is less powerful than audit committee. Second, it also finds that firms are more likely to hire partner-level audit experts when audit committee is relatively powerful than the CFO. The results are robust to other proxies for audit experts.