Firm ownership type, earnings management and auditor relationships: evidence from India
Purpose - 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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 26 (2011)
Issue (Month): 4 (April)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=maj Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Craswell, Allen & Stokes, Donald J. & Laughton, Janet, 2002. "Auditor independence and fee dependence," Journal of Accounting and Economics, Elsevier, vol. 33(2), pages 253-275, June.
- Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
- Brenda Van Tendeloo & Ann Vanstraelen, 2008.
"Earnings Management and Audit Quality in Europe: Evidence from the Private Client Segment Market,"
European Accounting Review,
Taylor & Francis Journals, vol. 17(3), pages 447-469.
- VAN TENDELOO, Brenda & VANSTRAELEN, Ann, 2005. "Earnings management and audit quality in Europe: Evidence from the private client segment market," Working Papers 2005012, University of Antwerp, Faculty of Applied Economics.
- Chaney, Paul K. & Faccio, Mara & Parsley, David, 2011. "The quality of accounting information in politically connected firms," Journal of Accounting and Economics, Elsevier, vol. 51(1-2), pages 58-76, February.
- Chaney, Paul K. & Faccio, Mara & Parsley, David, 2011. "The quality of accounting information in politically connected firms," Journal of Accounting and Economics, Elsevier, vol. 51(1), pages 58-76.
- Chaney, Paul & Faccio, Mara & Parsley, David, 2007. "The Quality of Accounting Information in Politically Connected Firms," MPRA Paper 6040, University Library of Munich, Germany.
- Chaney, Paul & Faccio, Mara & Parsley, David, 2009. "The Quality of Accounting Information in Politically Connected Firms," MPRA Paper 21116, University Library of Munich, Germany.
- Chhibber, Pradeep K & Majumdar, Sumit K, 1999. "Foreign Ownership and Profitability: Property Rights, Control, and the Performance of Firms in Indian Industry," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 209-238, April.
- Klein, April, 2002. "Audit committee, board of director characteristics, and earnings management," Journal of Accounting and Economics, Elsevier, vol. 33(3), pages 375-400, August.
- Nandini Gupta, 2005. "Partial Privatization and Firm Performance," Journal of Finance, American Finance Association, vol. 60(2), pages 987-1015, 04.
- Desender, Kurt A. & Garcia-Cestona, Miguel A. & Crespi, Rafel & Aguilera, Ruth V., 2009. "Board Characteristics and Audit Fees: Why Ownership Structure Matters?," Working Papers 09-0107, University of Illinois at Urbana-Champaign, College of Business.
- McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
- Ghosh, Saibal, 2007. "External Auditing, Managerial Monitoring and Firm Valuation: An Empirical Analysis for India," MPRA Paper 17142, University Library of Munich, Germany.
- Francis, Jere R., 1984. "The effect of audit firm size on audit prices : A study of the Australian Market," Journal of Accounting and Economics, Elsevier, vol. 6(2), pages 133-151, August.
- Joseph P. H. Fan & T. J. Wong, 2005. "Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia," Journal of Accounting Research, Wiley Blackwell, vol. 43(1), pages 35-72, 03.
- Ali, Ashiq & Chen, Tai-Yuan & Radhakrishnan, Suresh, 2007. "Corporate disclosures by family firms," Journal of Accounting and Economics, Elsevier, vol. 44(1-2), pages 238-286, September.
- Teoh, Siew Hong & Welch, Ivo & Wong, T. J., 1998. "Earnings management and the underperformance of seasoned equity offerings," Journal of Financial Economics, Elsevier, vol. 50(1), pages 63-99, October.
- Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
- Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
- Craswell, Allen T. & Francis, Jere R. & Taylor, Stephen L., 1995. "Auditor brand name reputations and industry specializations," Journal of Accounting and Economics, Elsevier, vol. 20(3), pages 297-322, December.
- Healy, Paul M., 1985. "The effect of bonus schemes on accounting decisions," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 85-107, April.
- Yuan Ding & Hua Zhang & Junxi Zhang, 2007. "Private vs State Ownership and Earnings Management: evidence from Chinese listed companies," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(2), pages 223-238, 03. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eme:majpps:v:26:y:2011:i:4:p:350-369. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.