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
Date Written: November 13, 2007
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: Suggested Citation