Title: Auditor characteristics and the pricing of discretionary accruals

Authors: Wael Aguir; Sharad Asthana; Linxiao Liu

Addresses: Department of Accounting and Finance, Western Illinois University, College of Business and Technology, Stipes Hall 442-L, 1 University Circle, Macomb, IL 61455-1390, USA ' Department of Accounting, College of Business, University of Texas at San Antonio, One UTSA Circle, San Antonio, TX 78249, USA ' Department of Accounting and Finance, University of West Georgia, 1601 Maple St. Carrollton, GA 30118, USA

Abstract: This study examines whether the investors' interpretation of discretionary accruals is impacted by auditor characteristics, namely auditor industry specialisation, the auditor/client economic bonding, and auditor tenure. The empirical results confirm our argument that investors do not perceive audit quality to be uniform within the Big 4 auditors. They price discretionary accruals of Big 4 clients differently, depending on auditor characteristics. In particular, auditor industry specialisation is an attribute that the market interprets positively. Furthermore, the economic bonding between the auditor and the client firm also sends a positive signal to the market. On the other hand, the length of auditor tenure does not influence the market's interpretation of discretionary accruals. This research is important since it highlights auditor attributes that influence investors' perception of audit and earnings quality.

Keywords: auditor characteristics; discretionary accruals; industry specialisation; economic bonding; auditor tenure; earnings quality; capital markets; auditing; investor perceptions; audit quality.

DOI: 10.1504/IJEA.2013.059880

International Journal of Economics and Accounting, 2013 Vol.4 No.4, pp.350 - 364

Published online: 29 Apr 2014 *

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