Publication Type

Journal Article

Version

acceptedVersion

Publication Date

1-2022

Abstract

Prior research documents that financial capacity could be positively or negatively associated with the demand for audit quality. We re-examine this relation using changes in local real estate prices as exogenous shocks to corporate financial capacity. Using auditor size, auditor industry specialisation, and auditor fees as measures of audit quality, we find robust evidence that an increase (decrease) in financial capacity significantly reduces (increases) the demand for audit quality, and that this relation is more pronounced when firms are more financially constrained, when external monitoring by institutional investors and financial analysts is weaker, and when there is more negative news about real estate price changes. Our study enriches the related literature by describing a more complete and dynamic relationship between audit quality and financial capacity.

Keywords

audit quality, financial capacity, real estate, financial constraint

Discipline

Accounting | Corporate Finance

Research Areas

Corporate Governance, Auditing and Risk Management

Publication

Accounting and Business Research

Volume

52

Issue

1

First Page

1

Last Page

37

ISSN

0001-4788

Identifier

10.1080/00014788.2020.1824116

Publisher

Taylor and Francis

Embargo Period

6-29-2021

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1080/00014788.2020.1824116

Share

COinS