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The value of Big 4 audits in Australia

Citation

Azizkhani, M and Monroe, GS and Shailer, G, The value of Big 4 audits in Australia, Accounting and Finance, 50, (4) pp. 743-766. ISSN 1467-629X (2010) [Refereed Article]

Copyright Statement

Copyright 2010 The Authors

DOI: doi:10.1111/j.1467-629X.2010.00346.x

Abstract

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.

Item Details

Item Type:Refereed Article
Keywords:financial reporting credibility, audit quality, ex ante cost of equity capital
Research Division:Commerce, Management, Tourism and Services
Research Group:Accounting, Auditing and Accountability
Research Field:Accounting, Auditing and Accountability not elsewhere classified
Objective Division:Commercial Services and Tourism
Objective Group:Property, Business Support Services and Trade
Objective Field:Administration and Business Support Services
Author:Azizkhani, M (Mr Masoud Azizkhani)
ID Code:124187
Year Published:2010
Web of Science® Times Cited:8
Deposited By:Tasmanian School of Business and Economics
Deposited On:2018-02-13
Last Modified:2018-03-29
Downloads:0

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