Big Five Audits and Accounting Fraud
57 Pages Posted: 27 May 2008
There are 2 versions of this paper
Big Five Audits and Accounting Fraud
Big Five Audits and Accounting Fraud
Date Written: May 2008
Abstract
We examine the association between Big Five audits and the incidence of accounting frauds allegedly committed by U.S. public companies between 1981 and 2001. Many commentators argue that the prominent financial reporting failures that led to major corporate governance reforms cast serious doubt on whether the large public accounting firms continue to supply higher-quality audits, especially in recent years. However, in unmatched and industry-size-year matched samples, we provide strong, robust evidence that fraudulent financial reporting becomes less likely with the presence of a Big Five auditor. Importantly, time-series tests suggest that the Big Five are consistently associated with a lower incidence of fraudulent accounting, including in the last five years of our sample period when the number of frauds soared. Moreover, we find evidence implying that these relations are causal rather than an artifact of endogeneity in auditor choice.
Keywords: corporate governance, Big Five audits, agency costs, accounting fraud
JEL Classification: M49, G34, G32, H25
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Who Blows the Whistle on Corporate Fraud?
By I. J. Alexander Dyck, Adair Morse, ...
-
Who Blows the Whistle on Corporate Fraud?
By I. J. Alexander Dyck, Adair Morse, ...
-
Who Blows the Whistle on Corporate Fraud?
By I. J. Alexander Dyck, Adair Morse, ...
-
Analyst Coverage and Earnings Management
By Frank Yu
-
By Krishna Palepu and Paul M. Healy
-
By Marilyn F. Johnson, Karen K. Nelson, ...
-
Do the Merits Matter Less after the Private Securities Litigation Reform Act?
-
Governance and Intermediation Problems in Capital Markets: Evidence from the Fall of Enron
By Paul M. Healy and Krishna Palepu
-
The Screening Effect of the Private Securities Litigation Reform Act
By Stephen J. Choi, Karen K. Nelson, ...