THE EFFECT OF THE AUDIT QUALITY AND AUDITOR SWITCHES ON CAPITAL MARKET

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ALAVI TABARI SEYYEDHOSSEYN; BASHIRIMANESH NAZANIN

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Journal: JOURNAL OF ACCOUNTING KNOWLEDGE AND MANAGEMENT AUDITING Year:2013 | Volume:2 | Issue:6 Page(s): 65-75

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Title

THE EFFECT OF THE AUDIT QUALITY AND AUDITOR SWITCHES ON CAPITAL MARKET

Author(s)

ALAVI TABARI SEYYEDHOSSEYN | BASHIRIMANESH NAZANIN | Issue Writer Certificate

Keywords

AUDIT QUALITYQ1

AUDITOR SWITCHEQ2

EARNINGS RESPONSE COEFFICIENTSQ2

QUALITY EARNINGSQ2

Abstract

Independent audits enhance the credibility of corporate financial reports and assist investors to make rational decisions in the capital market. Nonetheless, the utility of the auditing function depends upon the quality of audits, which is determined by the independence and expertise of auditors. Hence, auditor choice and switch will not only affect an audit's quality, but will also influence decisions made by investors and other market participants. The purpose of this paper is to investigate how investors respond to the quality of audits and AUDITOR SWITCHEs in the Chinese context. so, The companies that have experiencedauditorchangeduring1386-1389were analyzed. Empirical results show that the quality of an audit and switching to a larger auditor have a positive (negative) impact on EARNINGS RESPONSE COEFFICIENTS (ERCs) for firms with positive (negative) abnormal earnings. In contrast, switching to a smaller auditor has a negative (positive) impact on ERCs for firms with positive (negative) abnormal earnings. These results suggest that large auditing firms (Top 10) in China are perceived as more effective for curbing income-increased earnings management, which leads to higher (lower) ERCs for clients with positive (negative) abnormal earnings. Firms' switching to a larger auditor may signal high-quality earnings. Therefore, investors more often increase stock prices when firms have positive abnormal earnings and less often depreciate prices for negative abnormal earnings. Similarly, switching to a smaller auditor may signal lower earning quality, resulting in opposite market responses. In general, the empirical evidence suggests that audit information is valued by the capital market in Iran.

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APA: Copy

ALAVI TABARI, SEYYEDHOSSEYN, & BASHIRIMANESH, NAZANIN. (2013). THE EFFECT OF THE AUDIT QUALITY AND AUDITOR SWITCHES ON CAPITAL MARKET. JOURNAL OF ACCOUNTING KNOWLEDGE AND MANAGEMENT AUDITING, 2(6), 65-75. SID. https://sid.ir/paper/238156/en

Vancouver: Copy

ALAVI TABARI SEYYEDHOSSEYN, BASHIRIMANESH NAZANIN. THE EFFECT OF THE AUDIT QUALITY AND AUDITOR SWITCHES ON CAPITAL MARKET. JOURNAL OF ACCOUNTING KNOWLEDGE AND MANAGEMENT AUDITING[Internet]. 2013;2(6):65-75. Available from: https://sid.ir/paper/238156/en

IEEE: Copy

SEYYEDHOSSEYN ALAVI TABARI, and NAZANIN BASHIRIMANESH, “THE EFFECT OF THE AUDIT QUALITY AND AUDITOR SWITCHES ON CAPITAL MARKET,” JOURNAL OF ACCOUNTING KNOWLEDGE AND MANAGEMENT AUDITING, vol. 2, no. 6, pp. 65–75, 2013, [Online]. Available: https://sid.ir/paper/238156/en

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