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Empirical Analysis on Industry Specialization of Audit Firms and Its Audit Quality

Author

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  • Ryo Kato

    (Graduate School of Economics, Keio University)

  • Hu Dan Semba

    (School of Economics, Nagoya University)

Abstract

This study aims to empirically examine the influence of the auditor's industry specialization on its audit quality. Following the dissolution of ChuoAoyama?PricewaterhouseCoopers in 2007, the Japanese Big N audit market changed from Big 4 regime to Big 3 regime. Consistent with previous studies, absolute discretionary accruals are used as a proxy for audit quality along with six proxy variables for audit industry specialization. Additionally, we employed propensity score adjustment as a causal inference framework in order to lead more robust results. After analyzing a sample of publicly listed Japanese firms for fiscal years 2001 to 2006 (Big 4 period) and 2008 to 2012 (Big 3 period), we find that Japanese auditors perform higher quality audits during whole period. In addition, industry-specialized auditors' audit quality increases at a higher rate than for non-industry-specialized auditors in the Big 3 period compared to the Big 4 period.

Suggested Citation

  • Ryo Kato & Hu Dan Semba, 2016. "Empirical Analysis on Industry Specialization of Audit Firms and Its Audit Quality," Keio-IES Discussion Paper Series 2016-014, Institute for Economics Studies, Keio University.
    • Handle: RePEc:keo:dpaper:2016-014
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    More about this item

    Keywords

    Audit Quality; Industry Specialization; Causal Inference; Propensity Score; IPW;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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