The Joint Effect of Audit Quality and Legal Regimes on the Use of Real Earnings Management: International Evidence

• 成果类型: Article
• 署名作者: Choi, Ahrum; Choi, Jong-Hag; Sohn, Byungcherl Charlie
• 署名单位: Hong Kong Baptist University; Seoul National University (SNU); University of Macau
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12370
• 发表日期: 2018
• 页码: 2225-2257
• 关键词: investor protection; activities manipulation; corporate governance; accounting standards; ULTIMATE OWNERSHIP; accruals; big-4; benefits; PREMIUMS; MARKETS

摘要

This study investigates whether and how a firm's real earnings management (REM) is influenced by the strength of a country's legal regime and the presence of a Big 4 auditor. In a cross-country examination using data from 22 countries, we find that REM increases in countries with stronger legal regimes as firms switch from accrual-based earnings management (AEM) to REM. The presence of a Big 4 auditor reduces REM (as well as AEM) and attenuates the positive relation between legal regime strength and REM. Our results suggest that higher-quality auditors limit client firms' use of REM, especially in countries with a strong legal regime.