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Earnings response coefficients and the quality of earnings: The case of auditor change
Abstract
This study tests the effects of auditor change via an examination of differential information content based on the theoretical works of Holthausen and Verrecchia (1988) and Choi and Salamon (1988). This study examines 69 sample firms that changed their auditors from 1980 through 1987 to test the effects of differential information content on earnings announcements when the perceived quality of earnings signals is not identical. Institutional Brokers Estimate System (IBES) sample firms with an extended time horizon are analyzed further to confirm the findings of this study. This study improves previous differential content studies by incorporating the noise level of a firm's information system into the model. In addition, this study controls for unexpected earnings using analysts' forecasts. The empirical results of IBES sample firms with an expanded time horizon three years before and after auditor changes show quality differences between Big Eight auditors and non-Big Eight auditors. The earnings response coefficients, however, do not change significantly after an auditor change. These results suggest that investors' perceptions concerning the quality of a firm's external reporting system may not change over time, but that perceptions are not the same across firms.
Subject Area
Accounting
Recommended Citation
Kwak, Wikil, "Earnings response coefficients and the quality of earnings: The case of auditor change" (1990). ETD collection for University of Nebraska-Lincoln. AAI9034278.
https://digitalcommons.unl.edu/dissertations/AAI9034278