Lower discretionary accruals in second tier clients post-SOX: Client quality or auditor quality?
Item
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Title
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Lower discretionary accruals in second tier clients post-SOX: Client quality or auditor quality?
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Identifier
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d_2009_2013:dba3ead179bd:11123
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identifier
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11328
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Creator
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Wagner, Elisabeth Peltier,
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Contributor
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Aloke Ghosh | John A. Elliott
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Date
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2011
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Language
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English
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Publisher
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City University of New York.
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Subject
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Accounting | audit quality | Big 4 | discretionary accruals | earnings quality
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Abstract
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I investigate the audit quality in second tier firms BDO, Crowe Horwath, Grant Thornton, and McGladrey and Pullen. I compare the audit quality in second tier firms pre and post-SOX using discretionary accruals and controlling for client quality using propensity-score matching and firm-fixed effects. I also examine the relative audit quality of Big N and second tier auditors before and after SOX. I find no difference in accrual quality using a propensity score-matched pooled sample from 1988--2010. However, when I include an indicator variable for the post-SOX period, I find that accrual quality is higher for Big N clients in the pre-SOX period, but not in the post-SOX period. Using the full sample and controlling for self-selection with firm-fixed effects, I also find that audit quality was significantly different between Big N and second tier clients pre-SOX and may remain so post-SOX, although second tier improvements have significantly narrowed the gap in audit quality between the two groups. I additionally consider the possibility that the large number of firms switching down to second tier auditors from Big N auditors during the post-SOX period could be influencing the results. I look at a sample of firms that did not switch between the Big N and second tier auditors. I also look at the switching firms. I find no evidence that the newest second tier clients explain the increase in accrual quality. I find consistent results using going concern opinions and restatements as measures of audit quality.
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Type
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dissertation
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Source
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2009_2013.csv
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degree
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Ph.D.
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Program
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Business
