Auditor Industry Specialization, Political Economy and Earnings Quality: Some Cross‐Country Evidence

39 Pages Posted: 8 Jan 2012

See all articles by Bikki Jaggi

Bikki Jaggi

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Ferdinand A. Gul

Deakin University - Department of Accounting

Thomas Sing Chiu Lau

affiliation not provided to SSRN

Date Written: Spring 2012

Abstract

Using cross‐country data, we evaluate the impact of investor protection on the association between earnings quality and audits by industry specialists. Our findings show that the positive association between industry specialist auditors and earnings quality as documented in the literature is affected by the political electoral system, which reflects investor protection rights in a country. We document that audits by industry specialists are associated with higher earnings quality in countries with the proportional electoral system, reflecting weak investor protection. Our results also confirm Kwon et al.'s findings that overall there is a positive association between earnings quality and audits by industry specialists in countries with weak legal enforcement. Our findings, however, indicate that Kwon et al.'s results are valid only for countries with weak investor protection reflected by the proportional electoral system and not for countries with strong investor protection reflected by the majoritarian electoral system. These findings thus suggest that higher earnings quality of firms audited by industry specialists across countries can especially be expected when investor protection is low and legal enforcement is also weak. In addition, our research suggests that future cross‐country studies could explicitly consider the role of the political electoral system of a country in evaluating corporate governance, management and accounting issues.

Suggested Citation

Jaggi, Bikki and Gul, Ferdinand A. and Lau, Thomas Sing Chiu, Auditor Industry Specialization, Political Economy and Earnings Quality: Some Cross‐Country Evidence (Spring 2012). Journal of International Financial Management & Accounting, Vol. 23, No. 1, 2012, Available at SSRN: https://ssrn.com/abstract=1981049 or http://dx.doi.org/10.1111/j.1467-646X.2011.01053.x

Bikki Jaggi (Contact Author)

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

100B Rockafeller Road
Piscataway, NJ 08854
United States

Ferdinand A. Gul

Deakin University - Department of Accounting ( email )

Melbourne
Australia

Thomas Sing Chiu Lau

affiliation not provided to SSRN

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
3
Abstract Views
1,119
PlumX Metrics