Evidence on Audit Quality Differences Across Big N Audits: The Effect of Using an Industry Specialist Auditor on Cost of Equity

Posted: 11 Sep 2007 Last revised: 22 Apr 2008

See all articles by Anwer S. Ahmed

Anwer S. Ahmed

Texas A&M University - Mays Business School

Stephanie J. Rasmussen

University of Texas at Arlington

Senyo Y. Tse

Texas A&M University - Lowry Mays College & Graduate School of Business

Date Written: November 13, 2007

Abstract

We provide evidence on the determinants of the choice of an industry specialist auditor and the effect of this choice on cost of equity for a sample of firms that are audited by Big N auditors. We find that firms with more severe conflicts of interest between managers and shareholders are more likely to use an industry specialist auditor. Furthermore, we document that firms that use an industry specialist auditor have a significantly lower cost of equity after controlling for firms' endogenous decision to use an industry specialist auditor.

Keywords: Big N audits, ex ante cost of equity capital, financial reporting credibility, industry specialization

JEL Classification: G12, D82, G30, M49

Suggested Citation

Ahmed, Anwer S. and Rasmussen, Stephanie J. and Tse, Senyo Y., Evidence on Audit Quality Differences Across Big N Audits: The Effect of Using an Industry Specialist Auditor on Cost of Equity (November 13, 2007). AAA 2008 Financial Accounting and Reporting Section (FARS) Paper. Available at SSRN: https://ssrn.com/abstract=1013330

Anwer S. Ahmed

Texas A&M University - Mays Business School ( email )

430 Wehner
College Station, TX 77843-4353
United States

Stephanie J. Rasmussen (Contact Author)

University of Texas at Arlington ( email )

Box 19468
Arlington, TX 76019-0468
United States

Senyo Y. Tse

Texas A&M University - Lowry Mays College & Graduate School of Business ( email )

Wehner 401Q, MS 4353
456C
College Station, TX 77843-4218
United States
979-845-3784 (Phone)

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