The geography of US auditors: information quality and monitoring costs by local versus non-local auditors

The geography of US auditors: information quality and monitoring costs by local versus non-local... Borrowing from recent finance research that describes geographic distance as a determinant of information asymmetry and performance, we examine the relation between audit quality and auditor–client proximity. After controlling for monitoring costs (audit fees) and client firms’ selection of auditors, we find that accruals quality (a common proxy for audit performance) improves with auditor proximity. The findings indicate that auditors have information advantage that dissipates with geographic distance (i.e., “soft” information in Berger et al. in J Financ Econ 76(2):237–269, 2005; Coval and Moskowitz in J Polit Econ 109(4):811–841, 2001; Petersen and Rajan in J Financ 57(6):2533–2570, 2002), suggesting that that investors, analysts, and regulators should pay additional attention to information risk for firms audited by non-local auditors. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

The geography of US auditors: information quality and monitoring costs by local versus non-local auditors

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Publisher
Springer Journals
Copyright
Copyright © 2013 by Springer Science+Business Media New York
Subject
Economics / Management Science; Finance/Investment/Banking; Accounting/Auditing; Econometrics; Operations Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-013-0416-2
Publisher site
See Article on Publisher Site

Abstract

Borrowing from recent finance research that describes geographic distance as a determinant of information asymmetry and performance, we examine the relation between audit quality and auditor–client proximity. After controlling for monitoring costs (audit fees) and client firms’ selection of auditors, we find that accruals quality (a common proxy for audit performance) improves with auditor proximity. The findings indicate that auditors have information advantage that dissipates with geographic distance (i.e., “soft” information in Berger et al. in J Financ Econ 76(2):237–269, 2005; Coval and Moskowitz in J Polit Econ 109(4):811–841, 2001; Petersen and Rajan in J Financ 57(6):2533–2570, 2002), suggesting that that investors, analysts, and regulators should pay additional attention to information risk for firms audited by non-local auditors.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Nov 9, 2013

References

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