Prior studies that examine audit quality and earnings management mostly separate discretionary accruals from total accruals and use discretionary accruals (or absolute value of discretionary accruals) to measure the magnitude of earnings management. Although most of those studies find audit quality is able to restrain the degree of earnings manipulation, few evaluate whether audit quality is capable of reducing the information risk faced by investors. Compared to discretionary accruals, accruals quality measured by the extent to which current accruals map into operating cash flow realization is more directly related to information risk.
The purpose of this study is to examine the association between audit quality and information risk faced by investors, using accruals quality to proxy for information risk and adopting auditor brand name, audit-firm tenure, CPA tenure and auditor industry specialization as measures of audit quality. The study hypothesizes that auditor brand name, audit-firm tenure, CPA tenure and auditor industry specialization will contribute positively to reduce information risk faced by investors. The empirical results indicate (1) higher quality auditors (Big 4 auditors) are able to lower the information risk faced by investors, (2) the longer the audit-firm tenure, the lower the information risk faced by investors, (3) clients of industry specialist auditors have lower information risk than clients of non-specialist auditors, and (4) the relationship between audit-partner tenure and information risk is yet insignificant. Finally, the results further show that the divergence between control rights and cash flow rights will weaken the negative relationship between auditor brand name and information risk as well as the negative relationship between audit-firm tenure and information risk. However, it does not affect the negative relationship between auditor industry specialization and information risk; it may be because the industry specialist auditors can better resist the pressure from the controlling shareholders that can help alleviate the information risk faced by investors.
| Identifer | oai:union.ndltd.org:NSYSU/oai:NSYSU:etd-1228107-141930 |
| Date | 28 December 2007 |
| Creators | Shen, Wen-Hua |
| Contributors | none, Ruey-Dang Chang, none, none, none, none, none |
| Publisher | NSYSU |
| Source Sets | NSYSU Electronic Thesis and Dissertation Archive |
| Language | Cholon |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | http://etd.lib.nsysu.edu.tw/ETD-db/ETD-search/view_etd?URN=etd-1228107-141930 |
| Rights | not_available, Copyright information available at source archive |
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