IDEAS home Printed from
   My bibliography  Save this paper

Earnings management and audit quality in Europe: Evidence from the private client segment market


  • VAN TENDELOO, Brenda


This paper examines audit quality in private firms across different European countries. Prior research (e.g. Becker et al., 1998; Francis et al., 1999) has shown that audit quality provides a constraint on earnings management for public firms. We investigate whether audit quality differentiation also holds in private firms, constituting the majority of the EU economy and the EU market for audit services. This is an empirical question given that opposing arguments for (and against) the existence of a Big 4 audit quality difference between public and private firms can be given. Moreover, we question whether this audit quality difference, if any, is influenced by institutional factors. Using data on private firms of six European countries, this study provides evidence that, after controlling for self-selection, audit quality differentiation between Big 4 and non-Big 4 audit firms also exists in the private client segment market. However, we do not find support for an audit quality difference between second-tier and small audit firms. Consistent with prior research, we find that private companies domiciled in countries with a stronger investor protection engage less in earnings management. In addition, our results suggest that audit quality and investor protection are substitutes in constraining earnings management in private firms, in the sense that the Big 4 audit quality effect attenuates when investor protection is stronger.

Suggested Citation

  • 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.
  • Handle: RePEc:ant:wpaper:2005012

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2000. "Does information about competitors' actions increase or decrease competition in experimental oligopoly markets?," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 39-57, January.
    2. Jan Potters & Sigrid Suetens, 2009. "Cooperation in Experimental Games of Strategic Complements and Substitutes," Review of Economic Studies, Oxford University Press, vol. 76(3), pages 1125-1147.
    3. Potters, Jan & Rockenbach, Bettina & Sadrieh, Abdolkarim & van Damme, Eric, 2004. "Collusion under yardstick competition: an experimental study," International Journal of Industrial Organization, Elsevier, vol. 22(7), pages 1017-1038, September.
    4. Rotemberg, Julio J, 1994. "Human Relations in the Workplace," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 684-717, August.
    5. Martin, Stephen, 1996. "R & D joint ventures and tacit product market collusion," European Journal of Political Economy, Elsevier, vol. 11(4), pages 733-741, April.
    6. Altavilla, Carlo & Luini, Luigi & Sbriglia, Patrizia, 2006. "Social learning in market games," Journal of Economic Behavior & Organization, Elsevier, vol. 61(4), pages 632-652, December.
    7. Hans Normann & Brian Wallace, 2004. "The Impact of the Termination Rule in Cooperation Experiments," Royal Holloway, University of London: Discussion Papers in Economics 04/11, Department of Economics, Royal Holloway University of London, revised Jul 2004.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ant:wpaper:2005012. 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: (Joeri Nys). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.