Earnings Management and Audit Quality in Europe: Evidence from the Private Client Segment Market

Posted: 15 Dec 2005 Last revised: 11 Jan 2009

See all articles by Brenda Van Tendeloo

Brenda Van Tendeloo

University of Antwerp- Faculty of Applied Economics; Belgian Banking, Finance and Insurance Commission (CBFA)

Ann Vanstraelen

Maastricht Accounting and Auditing Research and Education Center (MARC); Maastricht University

Date Written: 2008

Abstract

This paper contributes to the recent literature on financial reporting quality in private (i.e. non-listed) firms (Burgstahler et al., 2006; Ball and Shivakumar, 2005) by examining whether Big 4 audit firms, as high quality auditors, provide a constraint on earnings management in private firms. Considering incentives of auditors to supply a high audit quality in private firms, we expect that Big 4 auditors have an incentive to constrain earning management only in high tax alignment countries, where financial statements are more scrutinized by tax authorities and the probability that an audit failure is detected is higher. Using data on private firms of six European countries, this study provides evidence consistent with this expectation.

Keywords: Audit quality, Earnings management, Investor protection, Private firms

JEL Classification: M41, M43, M47, M49, G38, O57

Suggested Citation

Van Tendeloo, Brenda and Vanstraelen, Ann, Earnings Management and Audit Quality in Europe: Evidence from the Private Client Segment Market (2008). European Accounting Review Vol. 17, No. 3, pp. 447-469, Available at SSRN: https://ssrn.com/abstract=869965

Brenda Van Tendeloo (Contact Author)

University of Antwerp- Faculty of Applied Economics ( email )

Antwerp, 2000
Belgium

Belgian Banking, Finance and Insurance Commission (CBFA) ( email )

Congresstraat 10-14
Brussel, 1000
Belgium

Ann Vanstraelen

Maastricht Accounting and Auditing Research and Education Center (MARC) ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

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