Litigation Risk and the Financial Reporting Credibility of Big 4 versus Non-Big 4 Audits: Evidence from Anglo-American Countries
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A frame that forgets how it found something cannot be audited. These are the routes that admitted this work.
No Canadian affiliation. An affiliation-only frame — the usual design — would never have seen this work. It is one of the works that make the case for inverting the frame.
Abstract
Prior research suggests that Big 4 auditors provide higher quality audits in the U.S. in order to protect the firm's brand name reputation and to avoid costly litigation. In this study, we examine whether the perceived higher quality of a Big 4 audit is related to auditor litigation exposure or to reputation concerns. Specifically, we utilize an estimable proxy for financial reporting credibility—the ex ante cost of equity capital—to examine whether Big 4 auditors are perceived as providing higher quality audits (relative to non-Big 4 auditors) in the U.S., and in the less litigious (but economically similar) environments in other Anglo-American countries during the 1990–99 period. We find that a Big 4 audit is associated with a lower ex ante cost of equity capital for auditees in the U.S. but not in Australia, Canada, or the U.K. Our findings suggest that it is litigation exposure rather than brand name reputation protection that drives perceived audit quality.
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The record
- Venue
- The Accounting Review
- Topic
- Auditing, Earnings Management, Governance
- Field
- Business, Management and Accounting
- Canadian institutions
- —
- Funders
- —
- Keywords
- ReputationAuditCredibilityBusinessQuality auditAccountingLitigation risk analysisEquity (law)Proxy (statistics)Big FourFinancePolitical science
- Has abstract in OpenAlex
- yes