Does the Performance of Non-Audit Services by Auditors Impair Independence? Evidence from Firms Post-Service Performance
38 Pages Posted: 23 Apr 2009
Date Written: April 19, 2009
Abstract
This study examines whether the provision of non-audit services by a firm’s own auditors provides value to the firm. We examine the future return on assets and sales growth as a function of the expenditures by the client firms on non-audit services, reasoning that if such payments are intended primarily to impair auditor independence, no association with future firm performance should be detected. Our findings show that, in fact, the payments to auditors for non-audit services are positively related to the one-period ahead sales growth. We interpret these findings as suggesting that firms do obtain value for their expenditures on non-audit services provided by their auditors. Thus, even if auditor independence is compromised by such hiring, the value obtained by the client firms for their non-audit services may justify their hiring.
Keywords: Non-audit services, firm performance, auditor independence, governance
JEL Classification: L21, L84, M49
Suggested Citation: Suggested Citation
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