Audit Quality and Properties of Analyst Earnings Forecasts

Posted: 14 Nov 2007  

Bruce K. Behn

University of Tennessee, Knoxville - College of Business Administration

Jong-Hag Choi

Seoul National University - College of Business Administration

Tony Kang

McMaster University - DeGroote School of Business

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Abstract

Under the assumption that audit quality relates positively to unobservable financial reporting reliability, we investigate whether audit quality is associated with the predictability of accounting earnings by focusing on analyst earnings forecast properties. The evidence shows that analysts' earnings forecast accuracy is higher and the forecast dispersion is smaller for firms audited by a Big Five auditor. We further find that auditor industry specialization is associated with higher forecast accuracy and less forecast dispersion in the non-Big Five auditor sample but not in the Big Five auditor sample. Overall, our results suggest that high quality audit provided by Big Five auditors and industry specialist non-Big Five auditors is associated with better forecasting performance by analysts.

Keywords: Audit Quality, Analyst Earnings Forecast, Forecast Accuracy and Dispersion

JEL Classification: M49, M41, M43, G29

Suggested Citation

Behn, Bruce K. and Choi, Jong-Hag and Kang, Tony, Audit Quality and Properties of Analyst Earnings Forecasts. Accounting Review, March 2008. Available at SSRN: https://ssrn.com/abstract=1029757

Bruce K. Behn

University of Tennessee, Knoxville - College of Business Administration ( email )

453 Haslam Business Building
Knoxville, TN 37996
United States
865-974-1760 (Phone)
865-974-4631 (Fax)

Jong Choi

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

Tony Kang (Contact Author)

McMaster University - DeGroote School of Business ( email )

1280 Main Street West
Hamilton, ON L8S 4M4
Canada
905-525-9140 x23846 (Phone)
905-521-8995 (Fax)

HOME PAGE: http://www.degroote.mcmaster.ca/profiles/tony-kang/

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