Audit Quality and Information Asymmetry between Traders

23 Pages Posted: 9 Sep 2012

See all articles by Greg Clinch

Greg Clinch

Independent

Donald J. Stokes

Monash University

Tingting Zhu

East China Normal University (ECNU)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2012

Abstract

In this study, we investigate the association between audit quality and information asymmetry between informed and uninformed traders. We employ three proxies for information asymmetry – absolute price differences, absolute volatility differences, and absolute differences in the long/short ratio of trades – between US stock and options markets and represent audit quality through the appointment of Big n and industry specialist auditors. For a sample of 4062 firm‐years between 2002 to 2005, our results indicate that the appointment of Big n and industry specialist auditors is associated with lower information asymmetry measures. Our results are consistent with audit quality playing a role in the quality of financial reporting information and flowing through to the allocation of information among traders.

Keywords: Audit quality, Information asymmetry, Earnings quality

JEL Classification: M42

Suggested Citation

Clinch, Greg and Stokes, Donald and Zhu, Tingting, Audit Quality and Information Asymmetry between Traders (September 2012). Accounting & Finance, Vol. 52, Issue 3, pp. 743-765, 2012. Available at SSRN: https://ssrn.com/abstract=2143488 or http://dx.doi.org/10.1111/j.1467-629X.2011.00411.x

Greg Clinch (Contact Author)

Independent

No Address Available

Donald Stokes

Monash University ( email )

Department of Accounting and Finance
P O Box 197
Caulfield East, Victoria 3145
Australia

Tingting Zhu

East China Normal University (ECNU) ( email )

North Zhongshan Road Campus
3663 N. Zhongshan Rd.
Shanghai, 200062
China

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