Do Nonaudit Services Enhance Value? Evidence from the Capital Markets

31 Pages Posted: 15 Sep 2006

See all articles by Seong-Yeon Cho

Seong-Yeon Cho

Oakland University

Jongsoo Han

Rutgers Business School - Camden

Kevin Fr. Brown

Wright State University

Date Written: August 6, 2006

Abstract

Nonaudit services performed by auditors for their audit clients have long been a focus of concern for regulators. The SEC has mandated disclosure of fees for both audit and nonaudit services in order to provide investors with a more transparent representation of the auditor-client relationship. The purpose of this study is to investigate whether nonaudit service fees influence the value relevance of accounting numbers. We find that nonaudit fees have a positive effect on the value relevance of accounting numbers. This result suggests that the provision of auditor's nonaudit services increases the value relevance of accounting information. This result is contrary to the prevailing belief that nonaudit services impair auditor independence. We also find that investors' perception of nonaudit fees has changed. In particular, investors perceive nonaudit service as more value enhancing even after the enactment of Sarbanes-Oxley.

Keywords: Value relevance, Auditor's fees, Nonaudit fees

JEL Classification: G14, G18, G38, M41, M49

Suggested Citation

Cho, Seong Y and Han, Jongsoo and Brown, Kevin Fr., Do Nonaudit Services Enhance Value? Evidence from the Capital Markets (August 6, 2006). Available at SSRN: https://ssrn.com/abstract=930556 or http://dx.doi.org/10.2139/ssrn.930556

Seong Y Cho

Oakland University ( email )

Rochester, MI 48084
United States
248-370-4307 (Phone)

Jongsoo Han (Contact Author)

Rutgers Business School - Camden ( email )

227 Penn Street
Camden, NJ 08102
United States

Kevin Fr. Brown

Wright State University ( email )

Dayton, OH 45435
United States

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