Does High-Quality Auditing Mitigate or Encourage Private Information Collection?

• 成果类型: Article
• 署名作者: Chen, Yangyang; Sadique, Shibley; Srinidhi, Bin; Veeraraghavan, Madhu
• 署名单位: Hong Kong Polytechnic University; University of Rajshahi; University of Texas System; University of Texas Arlington
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12318
• 发表日期: 2017
• 页码: 1622-1648
• 关键词: industry specialization; corporate governance; nonaudit services; office size; earnings; accruals; Auditors; TENURE

摘要

The finance literature offers two competing possibilities on how investors respond to the quality of public financial statements in their pricing decisions. They could collect either (i) more private information to benefit from lower information collection cost, or (ii) less private information because of lower incremental benefits. In this paper, we use the audit setting to examine which possibility prevails. Using the idiosyncratic return volatility as a proxy for firm-specific information, we show in a sample of 51,559 firm-year observations for 8,261 U.S. firms spanning the period of 2000-2010 that firms audited by higher-quality auditors exhibit lower average idiosyncratic return volatility but a higher concentration of it at the time of earnings announcements. Our findings are consistent with the argument that investors reduce private information collection in response to higher audit quality. Our findings are robust to alternative measures of audit quality and idiosyncratic return volatility.