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
Citation
LIM, Chee Yeow; LOBO, Gerald J.; RAO, Pingui; and YUE, Heng.
Financial capacity and the demand for audit quality. (2022). Accounting and Business Research. 52, (1), 1-37.
Available at: https://ink.library.smu.edu.sg/soa_research/1892
Copyright Owner and License
Authors
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/10.1080/00014788.2020.1824116