Can big 4 versus non-big 4 differences in audit-quality proxies be attributed to client characteristics?

Alastair Lawrence, Miguel Minutti-Meza, Ping Zhang

Research output: Contribution to journalArticle

298 Citations (Scopus)

Abstract

This study examines whether differences in proxies for audit quality between Big 4 and non-Big 4 audit firms could be a reflection of their respective clients' characteristics. In our analyses, we use three audit-quality proxies - Discretionary accruals, the ex ante cost-of-equity capital, and analyst forecast accuracy - And employ propensity-score and attribute-based matching models in attempt to control for differences in client characteristics between the two auditor groups while estimating the audit-quality effects. Using these matching models, we find that the effects of Big 4 auditors are insignificantly different from those of non-Big 4 auditors with respect to the three audit-quality proxies. Our results suggest that differences in these proxies be-tween Big 4 and non-Big 4 auditors largely reflect client characteristics and, more specifically, client size. We caution the reader that this study has not resolved the question, although we hope that it encourages other researchers to explore alternative methodologies that separate client characteristics from audit-quality effects.

Original languageEnglish (US)
Pages (from-to)259-286
Number of pages28
JournalAccounting Review
Volume86
Issue number1
DOIs
StatePublished - Jan 1 2011
Externally publishedYes

Fingerprint

Big 4
Audit quality
Auditors
Matching model
Propensity score
Audit firms
Forecast accuracy
Analysts' forecasts
Methodology
Cost of equity capital
Discretionary accruals

Keywords

  • Analyst forecast accuracy
  • Attribute-based matching
  • Big 4 versus non-Big 4 audit quality
  • Discretionary accruals
  • Ex ante cost-of-equity capital
  • Propensity-score matching

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Can big 4 versus non-big 4 differences in audit-quality proxies be attributed to client characteristics? / Lawrence, Alastair; Minutti-Meza, Miguel; Zhang, Ping.

In: Accounting Review, Vol. 86, No. 1, 01.01.2011, p. 259-286.

Research output: Contribution to journalArticle

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