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Investigating the Effect of Audit Quality on Over-investment Using Measures of Auditor Specialty and Audit Tenure for Listed Companies in Tehran Stock Exchange

  • Mahmoud Moeinadin

    ()

    (Islamic Azad University)

  • Jamal Barzagari Khaneghah

    ()

    (Islamic Azad University)

  • Jamal Tabatabaei Mazraehno

    ()

    (Islamic Azad University)

Registered author(s):

    The main objective of this study was to investigate the effects of audit quality on over-investment in listed companies in Tehran Stock Exchange. In order to measure audit quality, two variables, namely auditor tenure and auditor expertise were used. The study population comprised three selected industries: cement, basic metals and automotive parts; after determining the sample through selection method, the data was collected for the period between 2009 and 2012. In order to analyze and test the hypotheses, linear regression and logit regression was performed in Eviews (version 7.1) and SPSS (version 20). Using logit regression, results showed that there is a significant inverse relationship between auditor specialization and over-investment. Studying the audit quality in tenures, it was also found that there is no significant relationship between over-investment in long term period and medium tenure in any of the logit or linear regression models; however, using logit regression, there was found a positive significant relationship in short term period.

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    Article provided by Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences in its journal International Journal of Academic Research in Accounting, Finance and Management Sciences.

    Volume (Year): 3 (2013)
    Issue (Month): 4 (October)
    Pages: 229-244

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    Handle: RePEc:hur:ijaraf:v:3:y:2013:i:4:p:229-244
    Contact details of provider: Web page: http://hrmars.com/index.php/pages/detail/Accounting-Finance-Journal

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    1. Li, Dan, 2010. "Does auditor tenure affect accounting conservatism? Further evidence," Journal of Accounting and Public Policy, Elsevier, vol. 29(3), pages 226-241, June.
    2. Sattar A. Mansi & William F. Maxwell & Darius P. Miller, 2004. "Does Auditor Quality and Tenure Matter to Investors? Evidence from the Bond Market," Journal of Accounting Research, Wiley Blackwell, vol. 42(4), pages 755-793, 09.
    3. Biddle, Gary C. & Hilary, Gilles & Verdi, Rodrigo S., 2009. "How does financial reporting quality relate to investment efficiency?," Journal of Accounting and Economics, Elsevier, vol. 48(2-3), pages 112-131, December.
    4. Tim Adam & Vidhan K. Goyal, 2008. "The Investment Opportunity Set And Its Proxy Variables," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 31(1), pages 41-63.
    5. Artur Morgado & Julio Pindado, 2003. "The Underinvestment and Overinvestment Hypotheses: an Analysis Using Panel Data," European Financial Management, European Financial Management Association, vol. 9(2), pages 163-177.
    6. DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
    7. 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.
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