Audit Quality, Management Ownership, and the Informativeness of Accounting Earnings

By Ferdinand A. Gul, Stephen Lynn, J. Tsui. 2002

118 citations recorded by the source corpus.

This study has two primary objectives. First, it examines whether audit quality moderates the association between informativeness of accounting earnings and management ownership. Second, it also examines whether audit quality moderates the negative association between management ownership and discretionary accruals. Using Australian data, it is shown that the positive relationship between returns-earnings association and management ownership is signijicantly weaker for firms with Big 6 auditors. Similarly, the negative association between management ownership and discretionary accruals is weaker for firms with Big 6 auditors. These results are consistent with the theory that higher quality audits can mitigate insiders' incentives to exploit accounting-based contractual constraints and manage earnings as a result of the separation of ownership and control.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/ea2844ae8bffc27081f274653c01a1f0752301ee

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In Strategy and Management

Citations in the corpus

The influence of board independence, competency and ownership on earnings management in Malaysia (2009, methodology): “We also include audit quality as one important control variable because prior research found this variable significantly influences the magnitude of earnings management (DeAngelo, 1981; Becker et al. 1998; Francis et al. 1999; and Gul et al. 2001).”
Audit Quality: Insights from the Academic Literature (2013, background): “Other practitioners focus on error detection and the financial statement outcome, suggesting that a high-quality auditor will detect errors in reported earnings and enhance the reliability of the financial statements (e.g., Chan and Wong 2002; Gul et al. 2002; Behn et al. 2008; Chang et al. 2009).”
Investment opportunity set, corporate governance practices and firm performance (2004, methodology): “We use executive director equity ownership as a proxy for measuring management share ownership (see Morck et al., 1988; Rediker and Seth, 1995; Gul et al., 2002).”