Do Client Characteristics Really Drive the Big N Audit Quality Effect? New Evidence from Propensity Score Matching

Published Online:https://doi.org/10.1287/mnsc.2016.2528

References

  • Ali M, Groenwold R, Belitsera S, Pestmanc W, Hoesb A, Roesb K, Boera A, Klungel O (2015) Reporting of covariate selection and balance assessment in propensity score analysis is suboptimal: A systematic review. J. Clinical Epidemiology 68(2):122–131.CrossrefGoogle Scholar
  • Altman E (1983) Corporate Distress: A Complete Guide to Predicting, Avoiding and Dealing with Bankruptcy (John Wiley & Sons, New York).Google Scholar
  • Aobdia D (2015) The validity of publicly available measures of audit quality: Evidence from the PCAOB inspection data. Working paper, Northwestern University, Evanston, IL.Google Scholar
  • Archambeault D, Dezoort T, Hermanson D (2008) Audit committee incentive compensation and accounting restatements. Contemporary Accounting Res. 25(4):965–992.CrossrefGoogle Scholar
  • Armstrong C, Jagolinzer A, Larcker D (2010) Chief executive officer equity incentives and accounting irregularities. J. Accounting Res. 48(2):225–271.CrossrefGoogle Scholar
  • Austin P (2011) Optimal caliper widths for propensity-score matching when estimating differences in means and differences in proportions in observational studies. Pharmaceutical Statist. 10(2):150–161.CrossrefGoogle Scholar
  • Ball R, Jayaraman S, Shivakumar L (2012) Audited financial reporting and voluntary disclosure as complements: A test of the confirmation hypothesis. J. Accounting Econom. 53(1–2):136–166.CrossrefGoogle Scholar
  • Bartus T (2005) Estimation of marginal effects using margeff. Stata J. 5(3):309–329.CrossrefGoogle Scholar
  • Becker C, DeFond M, Jiambalvo J, Subramanyam K (1998) The effect of audit quality on earnings management. Contemporary Accounting Res. 15(1):1–24.CrossrefGoogle Scholar
  • Behn B, Choi J, Kang T (2008) Audit quality and properties of analyst earnings forecasts. Accounting Rev. 83(2):327–349.CrossrefGoogle Scholar
  • Boone J, Khurana I, Raman K (2010) Do the big 4 and the second-tier firms provide audits of similar quality? J. Accounting Public Policy 29(4):330–352.CrossrefGoogle Scholar
  • Burnett BM, Cripe BM, Martin GW, McAllister BP (2012) Audit quality and the trade-off between accretive stock repurchases and accrual-based earnings management. Accounting Rev. 87(6):1861–1884.CrossrefGoogle Scholar
  • Caliendo M, Kopeinig S (2008) Some practical guidance for the implementation of propensity score matching. J. Econom. Surveys 22(1):31–72.CrossrefGoogle Scholar
  • Cassell CA, Giroux G, Myers L, Omer TC (2013) The emergence of second-tier auditors in the US: Evidence from investor perceptions of financial reporting credibility. J. Bus., Finance, Accounting 40(3–4):350–372.CrossrefGoogle Scholar
  • Chan H, Wu D (2011) Aggregate quasi rents and auditor independence: Evidence from audit firm mergers in china. Contemporary Accounting Res. 28(1):175–213.CrossrefGoogle Scholar
  • Chaney P, Jeter D, Shivakumar L (2004) Self-selection of auditors and audit pricing in private firms. Accounting Rev. 79(1):51–72.CrossrefGoogle Scholar
  • Cheng M, Humphreys K (2012) The differential improvement effects of the strategy map and scorecard perspectives on managers’ strategic judgments. Accounting Rev. 87(3):899–924.CrossrefGoogle Scholar
  • DeAngelo L (1981) Auditor independence, “low-balling” and disclosure regulation. J. Accounting Econom. 3(2):113–127.CrossrefGoogle Scholar
  • DeFond M, Jiambalvo J (1991) Incidence and circumstances of accounting errors. Account. Rev. 66(3):643–655.Google Scholar
  • DeFond M, Zhang J (2014) A review of archival auditing research. J. Accounting Econom. 58(2–3):275–326.CrossrefGoogle Scholar
  • DeFond M, Lim C, Zang Y (2016) Client conservatism and auditor-client contracting. Accounting Rev. 91(1):69–98.CrossrefGoogle Scholar
  • DeFond M, Raghunandan K, Subramanyam K (2002) Do non-audit service fees impair auditor independence? Evidence from going concern audit opinions. J. Accounting Res. 40(4):1247–1274.CrossrefGoogle Scholar
  • Dehejia R, Wahba S (2002) Propensity score-matching methods for nonexperimental causal studies. Rev. Econom. Statist. 84(1):151–161.CrossrefGoogle Scholar
  • Doane D (1976) Aesthetic frequency classification. Amer. Stat. 30(4):181–183.Google Scholar
  • Doogar R, Easley R (1998) Concentration without differentiation: A new look at the determinants of audit market concentration. J. Accounting Econom. 25(3):235–253.CrossrefGoogle Scholar
  • Dopuch N, Simunic D (1982) Competition in auditing: An assessment. Sympos. Auditing Res. IV, University of Illinois at Urbana–Champaign, Urbana, 401–450.Google Scholar
  • Eilifsen A, Messier Jr WF (2015) Materiality guidance of the major public accounting firms. Auditing: J. Practice & Theory 34(2):3–26.CrossrefGoogle Scholar
  • Francis J, Michas P (2013) The contagion effect of low-quality audits. Accounting Rev. 88(2):521–552.CrossrefGoogle Scholar
  • Francis J, Yu M (2009) Big 4 office size and audit quality. Accounting Rev. 84(5):1521–1552.CrossrefGoogle Scholar
  • Francis J, Maydew E, Sparks H (1999) The role of Big 6 auditors in the credible reporting of accruals. Auditing: J. Practice & Theory 18(2):17–34.CrossrefGoogle Scholar
  • Francis J, Michas P, Yu M (2013) Office size of Big 4 auditors and client restatements. Contemporary Accounting Res. 30(4):1626–1661.CrossrefGoogle Scholar
  • Francis J, Reichelt K, Wang D (2005) The pricing of national and city-specific reputations for industry expertise in the U.S. audit market. Accounting Rev. 80(1):113–136.CrossrefGoogle Scholar
  • Glover S (1997) The influence of time pressure and accountability on auditors’ processing of nondiagnostic information. J. Accounting Res. 35(2):213–226.CrossrefGoogle Scholar
  • Guedhami O, Pittman J (2006) Ownership concentration in privatized firms: The role of disclosure standards, auditor choice, and auditing infrastructure. J. Accounting Res. 44(5):889–929.CrossrefGoogle Scholar
  • Gul F, Wu D, Yang Z (2013) Do individual auditors affect audit quality? Evidence from archival data. Accounting Rev. 88(6):1993–2023.CrossrefGoogle Scholar
  • Hosmer D, Lemeshow S (2000) Applied Logistic Regression, Wiley Series in Probability and Statistics, 2nd ed. (John Wiley & Sons, New York).CrossrefGoogle Scholar
  • House of Lords (2011) Auditors: Market concentration and their role. Supplementary memorandum by Mr Iain Richards. (January 11), http://www.publications.parliament.uk/pa/ld201011/ldselect/ldeconaf/119/11011105.htm.Google Scholar
  • Huelsbeck D, Merchant K, Sandino T (2011) On testing business models. Accounting Rev. 86(5):1631–1654.CrossrefGoogle Scholar
  • Iacus S, King G, Porro G (2011) Mutivariate matching methods that are monotonic imbalance bounding. J. Am. Stat. Assoc. 106(493):345–361.CrossrefGoogle Scholar
  • Ireland C, Lennox C (2002) The large audit firm fee premium: A case of selectivity bias? J. Accounting Audit. Finance. 17(1):73–91.CrossrefGoogle Scholar
  • Johnstone K (2000) Client-acceptance decisions: Simultaneous effects of client business risk, audit risk, auditor business risk, and risk adaptation. Auditing: J. Practice & Theory 19(1):1–26.CrossrefGoogle Scholar
  • Johnstone K, Bedard J (2004) Audit firm portfolio management decisions. J. Accounting Res. 42(4):659–690.CrossrefGoogle Scholar
  • Jones K, Krishnan G, Melendrez D (2008) Do models of discretionary accruals detect actual cases of fraudulent and restated earnings? An empirical analysis. Contemp. Accounting Res. 25(2):499–531.CrossrefGoogle Scholar
  • Kadous K, Mercer M (2011) Can reporting norms create a safe harbor? Jury verdicts against auditors under precise and imprecise accounting standards. Accounting Rev. 87(2):565–587.CrossrefGoogle Scholar
  • Khurana I, Raman K (2004) Litigation risk and the financial reporting credibility of Big 4 versus non-Big 4 audits: Evidence from Anglo-American countries. Accounting Rev. 79(2):473–495.CrossrefGoogle Scholar
  • Kim J, Chung R, Firth M (2003) Auditor conservatism, asymmetric monitoring, and earnings management. Contemp. Accounting Res. 20(2):323–359.CrossrefGoogle Scholar
  • Kim Y, Li H, Li S (2012) Does eliminating the Form 20-F reconciliation from IFRS to US GAAP have capital market consequences? J. Accounting Econom. 53(1–2):249–270.CrossrefGoogle Scholar
  • King G, Nielsen R, Coberley C, Pope J (2011) Comparative effectiveness of matching methods for causal inference. Working paper, Harvard University, Cambridge, UK.Google Scholar
  • Kothari S, Leone A, Wasley C (2005) Performance matched discretionary accrual measures. J. Accounting Econom. 39(1):163–197.CrossrefGoogle Scholar
  • Landsman W, Nelson K, Rountree B (2009) Auditor switches in the pre- and post-Enron Eras: risk or realignment? Accounting Rev. 84(2):531–558.CrossrefGoogle Scholar
  • Lawrence A, Minutti-Meza M, Zhang P (2011) Can Big 4 versus non-Big 4 differences in audit-quality proxies be attributed to client characteristics? Accounting Rev. 86(1):259–286.CrossrefGoogle Scholar
  • Leamer E (1983) Let’s take the con out of econometrics. Amer. Econom. Rev. 73(1):31–43.Google Scholar
  • Lennox C, Pittman J (2010) Big Five audits and accounting fraud. Contemporary Accounting Res. 27(1):209–247.CrossrefGoogle Scholar
  • Lennox C, Pittman J (2011) Voluntary audits versus mandatory audits. Accounting Rev. 86(5):1655–1678.CrossrefGoogle Scholar
  • Lennox C, Francis J, Wang Z (2012) Selection models in accounting research. Accounting Rev. 87(2):589–616.CrossrefGoogle Scholar
  • Lennox C, Wu X, Zhang T (2016) The effect of audit adjustments on earnings quality: Evidence from China. J. Accounting Econom. 61(2–3):545–562.CrossrefGoogle Scholar
  • Libby T, Salterio S, Webb A (2004) The balanced scorecard: The effects of assurance and process accountability on managerial judgment. Accounting Rev. 79(4):1075–1094.CrossrefGoogle Scholar
  • Lyon D, Barber BM, Tsai C (1999) Improved methods for tests of long-run abnormal stock returns. J. Finance 54(1):165–201.CrossrefGoogle Scholar
  • Michas P (2011) The importance of audit profession development in emerging market countries. Accounting Rev. 86(5):1731–1764.CrossrefGoogle Scholar
  • Minutti-Meza M (2013) Does auditor industry specialization improve audit quality? J. Accounting Res. 51(4):779–817.CrossrefGoogle Scholar
  • Naiker V, Sharma D, Sharma V (2012) Do former audit firm partners on audit committees procure greater nonaudit services from the auditor? Accounting Rev. 88(1):297–326.CrossrefGoogle Scholar
  • Petroni K, Beasley M (1996) Errors in accounting estimates and their relation to audit firm type. J. Accounting Res. 34(1):151–171.CrossrefGoogle Scholar
  • Raghunandan K, Rama D (1999) Auditor resignations and the market for audit services. Auditing: J. Practace & Theory 18(1):124–134.CrossrefGoogle Scholar
  • Reynolds K, Francis J (2001) Does size matter? The influence of large clients on office-level auditor reporting decisions. J. Accounting Econom. 30(3):375–400.CrossrefGoogle Scholar
  • Rosenbaum P, Rubin D (1984) Reducing bias in observational studies using subclassification on the propensity score. J. Amer. Statist. Assoc. 79(387):516–524.CrossrefGoogle Scholar
  • Rosenbaum P, Rubin D (1985) Constructing a control group using multivariate matched sampling methods that incorporate the propensity score. Amer. Statistician 39(1):33–38.CrossrefGoogle Scholar
  • Schwartz K, Soo B (1996) The association between auditor changes and reporting lags. Contempory Accounting Res. 13(1):353–370.CrossrefGoogle Scholar
  • Shipman J, Swanquist Q, Whited R (2016) Propensity score matching in accounting research. Accounting Rev., ePub ahead of print March 2016, http://dx.doi.org/10.2308/accr-51449.CrossrefGoogle Scholar
  • Sturges H (1926) The choice of a class interval. J. Amer. Statist. Assoc. 21(153):65–66.CrossrefGoogle Scholar
  • Teoh S, Wong T (1993) Perceived auditor quality and the earnings response coefficient. Accounting Rev. 68(2):346–366.CrossrefGoogle Scholar
  • Wang Q, Wong T, Xia L (2008) State ownership, the institutional environment, and auditor choice: Evidence from china. J. Accounting Econom. 46(1):112–134.CrossrefGoogle Scholar
  • Watts R, Zimmerman J (1981) Auditors and the determination of accounting standards. Working paper, University of Rochester, Rochester, NY.Google Scholar
  • Weber J, Willenborg M (2003) Do expert informational intermediaries add value? Evidence from auditors in Microcap IPOs. J. Accounting Res. 41(4):681–720.CrossrefGoogle Scholar
  • Zhou X, Obuchowski N, Obuchowski D (2002) Statistical Methods in Diagnostic Medicine (John Wiley & Sons, New York).CrossrefGoogle Scholar
  • Zmijewski ME (1984) Methodological issues related to the estimation of financial distress prediction models. J. Accounting Res. 22(Supplement):59–82.CrossrefGoogle Scholar
INFORMS site uses cookies to store information on your computer. Some are essential to make our site work; Others help us improve the user experience. By using this site, you consent to the placement of these cookies. Please read our Privacy Statement to learn more.