CPA-Firm Merger: An Investigation of Audit Quality

增加物 会计 声誉 审计 业务 证券交易所 公司 上市(财务) 质量(理念) 财务 政治学 法学 收益 哲学 认识论
作者
Taychang Wang,Chiawen Liu,Chien-Heng Jennifer Chang
出处
期刊:European Accounting Review [Routledge]
卷期号:20 (4): 727-761 被引量:9
标识
DOI:10.1080/09638180.2011.600485
摘要

Abstract It would be interesting to know how the theories and hypotheses in auditing developed for a mature economy work in an emerging market. This paper uses the merger of Diwan, Ernst & Young and J.T. Lai & Co., CPAs in Taiwan in 2000 as a target to study the effects of a CPA-firm merger on audit quality, measured by discretionary accruals. Diwan, Ernst & Young and J.T. Lai & Co., CPAs belonged to Big 5 and non-Big 5 CPA firms in Taiwan, respectively, before they merged. The magnitudes of the increased size and reputation caused by the merger are different between the two firms. Therefore, we also analyse whether the merger has different effects on audit quality of these two firms. The empirical evidence shows that after the merger, the discretionary accruals of the two firms' clients significantly decrease. In addition, the magnitude of the change is greater for the clients of J.T. Lai & Co., CPAs than for those of Diwan, Ernst & Young. The results are consistent with predictions of both size and reputation effect hypotheses. Acknowledgements We would like to thank the editors and anonymous referees for the helpful comments and suggestions during the review process. Chien-Heng Jennifer Chang acknowledges financial support from the T.N. Soong Accounting Foundation. Notes In Taiwan, there are two major stock markets, Taiwan Stock Exchange Corporation (TWSE) and GreTai Securities Market (GTSM). A company, satisfying certain criteria, can apply for listing on one of the two markets. Dechow et al. Citation(1995) compare five methods of estimating discretionary accruals. They point out that the modified Jones model has the highest testing power. Guay et al. Citation(1996) also suggest that only the Jones model and the modified Jones model can produce reliable estimates. For example, Myers et al. Citation(2003) study the relation between accruals and auditor size and tenure. The control variables in their paper do not include any corporate governance variables. Frankel et al. Citation(2002) examine the relation between unsigned accruals and auditor size. For all kinds of corporate governance variables, they include only institutional investor holdings. However, Frankel et al. Citation(2002) do not find that Big 5 CPA firms have significant effects on the discretionary accruals. Geiger and Raghunandan Citation(2002b), Carcello and Neal Citation(2000) and Mutchler et al. Citation(1997) also do not find a significant Big 5/Big 6 variable. We use the cash flow approach (see Hribar and Collins, Citation2002) to compute total accruals, which equal the earnings before extraordinary items minus the cash flows from operating activities. We also perform additional analysis where total accruals are computed following Frankel et al. Citation(2002) and Reynolds and Francis Citation(2001). The amounts of total accruals estimated by different methods are very similar and our main findings are robust to the methods for computing total accruals. E&Y and J-T merged on 1 January 2000 and the name of the post-merger CPA firm remained E&Y. That is, the financial statements of all sample companies in the post-merger period were audited by post-merger E&Y. Therefore, we define JT it as 1 for all companies whose pre-merger auditor is J-T, whether the data belongs to the per- or post-merger period. ZSCORE = 1.2 * (current assets − current liabilities)/total assets + 1.4 * retained earnings/total assets + 3.3 * earnings before interest and taxes/total assets + 0.6 * market value of preferred and common equity/total liabilities + 0.999 * sales/total assets. Altman Citation(1968) indicates that firms with a z-score greater than 2.99 are clearly assigned to the ‘non-bankrupt’ group, while firms with a z-score below 1.81 are assigned to the ‘bankrupt’ group. The area between 1.81 and 2.99 is defined as the ‘grey area’. On the other hand, the mean of the post-merger ZSCORE is significantly lower than the pre-merger one, which could lead to lower discretionary accruals in the pre-merger period. We use White's robust estimator of variance in place of the traditional calculation, and report the robust coefficients and p-values in all tables (White, Citation1980). As indicated in Table 1, the number of J-T's clients included in the sample is five or six. In order to deal with the sample size issue, we also re-estimate regressions with the bootstrapping method. These results are not shown in this paper as they are highly similar except that MERCPA becomes less significant (p = 0.051 for the Jones model and p = 0.046 for the modified Jones model). The control group in the regression consists of clients of other Big 5 CPA firms, excluding those of the former T.N. Soong & Co., which was the member firm of Arthur Andersen in Taiwan, to avoid the possible interference from the Enron scandal. Alternatively, we winsorise all variables at 1st and 99th percentiles. The results are still similar to those reported in the paper. Again, the control group excludes clients of the former T.N. Soong & Co. to avoid the possible interference from the Enron scandal. The results with companies audited by former T.N. Soong & Co. are basically the same.
最长约 10秒,即可获得该文献文件

科研通智能强力驱动
Strongly Powered by AbleSci AI
更新
PDF的下载单位、IP信息已删除 (2025-6-4)

科研通是完全免费的文献互助平台,具备全网最快的应助速度,最高的求助完成率。 对每一个文献求助,科研通都将尽心尽力,给求助人一个满意的交代。
实时播报
个性的夜天完成签到,获得积分10
刚刚
LHL发布了新的文献求助10
刚刚
阳光白山完成签到,获得积分20
1秒前
xiong完成签到 ,获得积分10
2秒前
自信谷冬发布了新的文献求助10
2秒前
慕青应助Aaron采纳,获得10
2秒前
黑子完成签到,获得积分10
3秒前
wanci应助芬栀采纳,获得10
4秒前
qinzx完成签到,获得积分10
4秒前
道道sy完成签到,获得积分10
5秒前
陈飞飞完成签到,获得积分10
5秒前
机智的乌发布了新的文献求助10
7秒前
黑面宝宝发布了新的文献求助10
8秒前
陈飞飞发布了新的文献求助20
8秒前
大气的硬币完成签到,获得积分10
9秒前
May完成签到,获得积分10
9秒前
10秒前
莫海尔完成签到,获得积分10
10秒前
思源应助雨衣采纳,获得28
11秒前
11秒前
jinxixi完成签到,获得积分10
11秒前
虚心念桃完成签到,获得积分10
12秒前
孙福禄应助李123采纳,获得10
12秒前
玉昆完成签到 ,获得积分10
12秒前
12秒前
大金鱼完成签到 ,获得积分10
13秒前
13秒前
传奇3应助ChiLi采纳,获得10
14秒前
22发布了新的文献求助10
14秒前
14秒前
杞人忧天完成签到,获得积分10
14秒前
niu完成签到 ,获得积分10
14秒前
JamesPei应助tp040900采纳,获得10
15秒前
强仔发布了新的文献求助10
17秒前
Lucas应助大观天下采纳,获得10
17秒前
18秒前
LSJ发布了新的文献求助10
18秒前
sulifie发布了新的文献求助10
18秒前
orixero应助Arthur采纳,获得10
19秒前
风清扬发布了新的文献求助20
19秒前
高分求助中
The Mother of All Tableaux: Order, Equivalence, and Geometry in the Large-scale Structure of Optimality Theory 3000
A new approach to the extrapolation of accelerated life test data 1000
Indomethacinのヒトにおける経皮吸収 400
基于可调谐半导体激光吸收光谱技术泄漏气体检测系统的研究 370
Phylogenetic study of the order Polydesmida (Myriapoda: Diplopoda) 370
Robot-supported joining of reinforcement textiles with one-sided sewing heads 320
Aktuelle Entwicklungen in der linguistischen Forschung 300
热门求助领域 (近24小时)
化学 材料科学 医学 生物 工程类 有机化学 生物化学 物理 内科学 纳米技术 计算机科学 化学工程 复合材料 遗传学 基因 物理化学 催化作用 冶金 细胞生物学 免疫学
热门帖子
关注 科研通微信公众号,转发送积分 3991346
求助须知:如何正确求助?哪些是违规求助? 3532660
关于积分的说明 11258185
捐赠科研通 3271634
什么是DOI,文献DOI怎么找? 1805484
邀请新用户注册赠送积分活动 882447
科研通“疑难数据库(出版商)”最低求助积分说明 809314