Firm ownership type, earnings management and auditor relationships: evidence from India
AbstractPurpose – Using data on Indian listed companies for 2005, the purpose of this paper is to examine how firm ownership relates to auditor choice. More specifically, the author tests several hypotheses about the links between firm ownership, auditor relationships and earnings management. Design/methodology/approach – Several econometric techniques were employed including ordinary least squares, logit regression, ordered logit regression, Poisson and negative binomial regression to test the association between firm ownership and auditors. Findings – The results indicate that firms having high discretionary accruals are less likely to be audited by domestic entities. The analysis also suggests that domestic auditors are less likely to be preferred by both foreign and Indian private corporations. In addition, the analysis indicates that audit fees are higher for firms with higher earnings opacity. Research limitations/implications – Driven by data availability, the paper relies on cross-sectional data. Practical implications – The results demonstrate that firm ownership is an important consideration for firm auditor relationships. Thus, policymakers should not worry if firms persistently choose to do business with the same auditor. Second, the results are a pointer to the fact that given the differences in their governance structures, the role of domestic and foreign auditors in servicing business groups and state-owned corporations is distinctly different. Finally, the evidence suggests that the choice of multiple auditors is more to address the complexities involved in multiple business lines, as opposed to curtailing audit fees. Originality/value – To the author's knowledge, this is perhaps the first study for an emerging economy and more certainly for India to examine the firm ownership-auditor nexus.
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Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Managerial Auditing Journal.
Volume (Year): 26 (2011)
Issue (Month): 4 (May)
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Web page: http://www.emeraldinsight.com
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Other versions of this item:
- Ghosh, Saibal, 2010. "Firm Ownership Type, Earnings Management and Auditor Relationships: Evidence from India," MPRA Paper 30322, University Library of Munich, Germany.
- C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
- M42 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Auditing
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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