Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/30588
Title: Does audit quality matter more for firms with high investment opportunities?
Authors: Lai, KW 
Keywords: Audit quality
Bonding device
Discretionary accruals
Investment opportunities
Issue Date: 2009
Publisher: Elsevier Science Inc
Source: Journal of accounting and public policy, 2009, v. 28, no. 1, p. 33-50 How to cite?
Journal: Journal of Accounting and Public Policy 
Abstract: This paper examines the association of firms with high investment opportunities with high quality audits (proxied by Big 5 auditors) and whether that association results in a lower likelihood of earnings management. Firms with high investment opportunities may demand high quality audits for curbing earnings management. This is because they have more flexibility in the provision of discretionary accruals that arises from the attendant operating uncertainty which creates particular monitoring problems. Big 5 auditors will provide high quality audits that will constrain earnings management for firms with high investment opportunities because the risk of losing (and hence the likelihood of maintaining) auditor independence is higher. Results show the following. First, firms with high investment opportunities are more likely to hire Big 5 auditors than firms with low investment opportunities. Second, firms with high investment opportunities are more likely to have more discretionary accruals but this relationship is weaker when they have Big 5 auditors. These results are robust to various sensitivity tests.
URI: http://hdl.handle.net/10397/30588
DOI: 10.1016/j.jaccpubpol.2008.11.002
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