tailieunhanh - Auditor’s characteristics and earnings management in India

This study investigates whether auditor’s characteristics such as its independence and professional quality act as a deterrent to earnings management in India. The existing evidence on the relationship of auditor’s independence and quality with earnings management is not conclusive. | http afr. Accounting and Finance Research Vol. 7 No. 4 2018 Auditor s Characteristics and Earnings Management in India Hanish Rajpal1 Pawan Jain1 1 Institute of Management Technology Nagpur India. Correspondence Institute of Management Technology 603 Khullar Apartments Byramji Town Nagpur -440013. Maharashtra India Received September 5 2017 Accepted August 24 2018 Online Published September 7 2018 doi URL https Abstract This study investigates whether auditor s characteristics such as its independence and professional quality act as a deterrent to earnings management in India. The existing evidence on the relationship of auditor s independence and quality with earnings management is not conclusive. The said relationship has not been examined in the context of Indian companies. The study uses a panel data of 1 600 firm years. The study provides evidence on the presence of knowledge spillover hypothesis as negative relationship is found between fees for non-audit services and earnings management. The study does not find any significant relationship of earnings management with industry specialization of the auditor and size of the auditor. The results are consistent under various robustness checks. Keywords earnings management auditor non-audit fees big 4 panel data 1. Introduction Earnings management EM may be defined as the practice of altering the earnings by using management discretion or judgment and flexibility provided by accounting principles in order to achieve a desired objective. It has been argued that EM reduces the quality and information content of earnings Wang et al. 1993 Ali and Pope 1995 . Prior literature has also argued that reported earnings are related to stock returns Das and Lev 1994 Liu and Thomas 2000 . Considering that the opportunistic behavior of managers impacts the quality of financial reporting and thereby the decision making process of stakeholders accounting earnings .