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The value of Big 4 audits in Australia


  • Masoud Azizkhani
  • Gary S. Monroe
  • Greg Shailer


Research suggests that equity markets value Big N audits over non-Big N audits. Explanations include the information quality hypothesis, whereby Big N auditors increase information quality, and the insurance hypothesis, whereby investors value the deeper pockets of Big N auditors. Using client firms'"ex ante" cost of capital as the dependent variable, we investigate whether capital market participants differentially value Big 4 versus non-Big 4 audits in Australia and whether the value of Big 4 audits in Australia changed as a result of the audit failures of 2001-2002. We find that Big 4 audits reduce the "ex ante" cost of equity capital until 2001, but not after 2001. We cannot dismiss the insurance hypothesis for the persistence of the loss beyond 2003 because of the establishment of liability caps, but the demise of the Big 4 audit value for 2001-2003 is consistent with the information quality hypothesis and does not support the insurance hypothesis. Copyright (c) 2010 The Authors. Accounting and Finance (c) 2010 AFAANZ.

Suggested Citation

  • Masoud Azizkhani & Gary S. Monroe & Greg Shailer, 2010. "The value of Big 4 audits in Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 50(4), pages 743-766.
  • Handle: RePEc:bla:acctfi:v:50:y:2010:i:4:p:743-766

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    1. repec:eee:riibaf:v:42:y:2017:i:c:p:689-709 is not listed on IDEAS
    2. Munisi, Gibson & Randøy, Trond, 2013. "Corporate governance and company performance across Sub-Saharan African countries," Journal of Economics and Business, Elsevier, vol. 70(C), pages 92-110.
    3. repec:eee:jocaae:v:11:y:2015:i:1:p:46-60 is not listed on IDEAS
    4. repec:eee:advacc:v:33:y:2016:i:c:p:59-67 is not listed on IDEAS
    5. Joshy,Jacob & Desai, Naman & Agarwalla, Sobhesh Kumar, 2015. "Are Big 4 Audit Fee Premiums Always Related to Superior Audit Quality? Evidence from India’s Unique Audit Market," IIMA Working Papers WP2015-03-10, Indian Institute of Management Ahmedabad, Research and Publication Department.

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