Publication Type
Journal Article
Version
publishedVersion
Publication Date
11-2007
Abstract
This paper extends prior studies in auditor industry specialization to an international setting and examines if the impact of industry specialist auditors on earnings quality is dependent on the legal environments. Using data for 28 countries over 20 industries from 1993 to 2003, we find that clients of industry specialist auditors have lower discretionary current accruals and higher earnings response coefficients than clients of nonspecialist auditors. In addition, we find that the impact of auditor industry specialization on earnings quality increases as the legal environment weakens. Collectively, the results suggest that the benefits from engaging the services of industry specialist auditors increase as a country's legal environment shifts from a strong to a weak environment. Our results are robust to the inclusion of additional control variables.
Keywords
auditor industry specialization, earnings quality, legal environment
Discipline
Accounting | Corporate Finance
Research Areas
Corporate Governance, Auditing and Risk Management
Publication
Auditing: A Journal of Practice and Theory
Volume
26
Issue
2
First Page
25
Last Page
56
ISSN
0278-0380
Identifier
10.2308/aud.2007.26.2.25
Publisher
American Accounting Association
Citation
LIM, Chee Yeow; KWON, Soo Young; and TAN, Patricia Mui Siang.
Legal Systems and Earnings Quality: The Role of Auditor Industry Specialization. (2007). Auditing: A Journal of Practice and Theory. 26, (2), 25-56.
Available at: https://ink.library.smu.edu.sg/soa_research/587
Copyright Owner and License
Publisher
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.2308/aud.2007.26.2.25