Auditor Reputation and Earnings Management: International Evidence from the Banking Industry

40 Pages Posted: 13 Mar 2010 Last revised: 24 Oct 2015

See all articles by Kiridaran (Giri) Kanagaretnam

Kiridaran (Giri) Kanagaretnam

York University - Schulich School of Business

Chee Yeow Lim

Singapore Management University - School of Accountancy

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Date Written: January 1, 2010

Abstract

We examine the relation between auditor reputation and earnings management in banks using a sample of banks from 29 countries. In particular, we examine the implications of two aspects of auditor reputation, auditor type and auditor industry specialization, for earnings management in banks. We find that both auditor type and auditor industry specialization moderate benchmark-beating (loss-avoidance and just-meeting-or-beating prior year’s earnings) behavior in banks. However, we find that once auditor type and auditor industry specialization are included in the same tests, only auditor industry specialization has a significant impact on constraining benchmark-beating behavior. In tests related to income-increasing abnormal loan loss provisions, we find in separate tests that both auditor type and auditor expertise constrain income-increasing earnings management. Again, in joint tests, only auditor industry expertise has a significant impact on constraining income-increasing earnings management.

Keywords: Auditor reputation, Auditor expertise, Earnings Management, Earnings Benchmarks, Loan loss provisions

JEL Classification: G14, G21, M41, M42

Suggested Citation

Kanagaretnam, Kiridaran and Lim, Chee Yeow and Lobo, Gerald J., Auditor Reputation and Earnings Management: International Evidence from the Banking Industry (January 1, 2010). Journal of Banking and Finance, Vol. 34, No. 10, 2010, Available at SSRN: https://ssrn.com/abstract=1568866

Kiridaran Kanagaretnam (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Chee Yeow Lim

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4838 (Phone)
713-743-4828 (Fax)

HOME PAGE: http://www.bauer.uh.edu/acct/acctprofile.asp?search=Gerald%20Lobo

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