Industry-Expert Auditors and Investor Valuations in Regulated Industries: Evidence from Banking

Academy of Accounting and Financial Studies Journal, Vol. 3, No. 1, 1999

10 Pages Posted: 22 Mar 2012 Last revised: 26 Mar 2012

See all articles by Edward B. Douthett

Edward B. Douthett

George Mason University - School of Business

Dorothy Lee Warren

Belmont University - Massey School of Business

Date Written: March 19, 2012

Abstract

We propose that regulation increases the demand for industry-expert auditors. We hypothesize that this increase in demand will be reflected in the degree of reliance investors place on financial information certified by industry-expert auditors. We evaluate the return-earnings relation for regulated banks that choose industry-expert and non-industry-expert auditors. By enhancing the credibility of the financial statements, industry-expert auditors potentially strengthen the link between earnings and returns even in a regulated environment. The results suggest that the choice of an expert-auditor favorably affects investor valuations of the banks used in the sample. Earnings explains more of the variation of returns when the earnings numbers are certified by expert versus non-expert auditors after controlling for the effects of regulatory attention.

Suggested Citation

Douthett, Edward B. and Warren, Dorothy Lee, Industry-Expert Auditors and Investor Valuations in Regulated Industries: Evidence from Banking (March 19, 2012). Academy of Accounting and Financial Studies Journal, Vol. 3, No. 1, 1999. Available at SSRN: https://ssrn.com/abstract=2026084

Edward B. Douthett (Contact Author)

George Mason University - School of Business ( email )

Dorothy Lee Warren

Belmont University - Massey School of Business ( email )

1900 Belmont Blvd.
Nashville, TN 37212-3757
United States

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