Differences in Conservatism between Big Eight and Non-Big Eight Auditors

58 Pages Posted: 3 May 2014

See all articles by Sudipta Basu

Sudipta Basu

Temple University - Department of Accounting

Lee-Seok Hwang

Seoul National University - College of Business Administration

Ching-Lih Jan

California State University, East Bay

Date Written: October 2001

Abstract

Auditors’ incentives to be conservative are likely to vary both cross-sectionally and over time based on their legal liability exposure. We predict that Big Eight (Six/Five) auditors are likely to be more conservative than non-Big Eight Auditors. We show that the earnings reported by Big Eight auditees are more conservative than the earnings of non-Big Eight auditees, utilizing several measures from Basu (1997). The difference in conservatism between Big Eight and non-Big Eight auditees is higher in periods of high auditor liability exposure, consistent with Big Eight auditors being relatively more conservative when exposed to greater legal liability.

Keywords: Earnings-return relation; Negative returns

JEL Classification: M41, D21, D82, G14, G38, K41, N20

Suggested Citation

Basu, Sudipta and Hwang, Lee-Seok and Jan, Ching-Lih, Differences in Conservatism between Big Eight and Non-Big Eight Auditors (October 2001). Available at SSRN: https://ssrn.com/abstract=2428836 or http://dx.doi.org/10.2139/ssrn.2428836

Sudipta Basu (Contact Author)

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States
215.204.0489 (Phone)
215.204.5587 (Fax)

Lee-Seok Hwang

Seoul National University - College of Business Administration ( email )

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

Ching-Lih Jan

California State University, East Bay ( email )

25800 Carlos Bee Boulevard
Hayward, CA 94542
United States

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