National Level, City Level Auditor Industry Specialization and Analyst Forecast Properties

Abstract

We examine the relation between Big N industry specialist auditors and analyst forecast properties using a national and city level industry specialist framework. Consistent with the assumption that audit quality is positively related to financial reporting quality and predictability of accounting earnings, our results show that firms audited by joint city and national leaders have more accurate analyst forecasts. We also find that firms audited by city level industry leaders, either alone or jointly with national leaders, have lower analyst forecast dispersion. In addition, our results are more pronounced for small firms that suffer from higher information asymmetry. Finally, we find some evidence that firms that switch their auditors to joint or city industry specialist auditors experience a decrease in forecast error. However, we do not find that firms that switch their auditors away from industry specialist auditors experience an increase in forecast error, neither do we find that auditor switch between industry specialist auditors and non‐specialists affects forecast dispersion.

Keywords: auditor industry specialization, national level industry specialist, city level industry specialist, analyst forecast accuracy, analyst forecast dispersion