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
fanyueyue应助111采纳,获得10
1秒前
1秒前
1秒前
kcmat发布了新的文献求助10
2秒前
hh完成签到,获得积分10
3秒前
Philadelphus发布了新的文献求助10
4秒前
einuo完成签到,获得积分10
4秒前
AKYDXS完成签到,获得积分10
7秒前
昏睡的蟠桃应助Llllll采纳,获得200
7秒前
科研通AI2S应助hao采纳,获得10
7秒前
8秒前
8秒前
香蕉觅云应助阿湫采纳,获得10
9秒前
星辰大海应助星辰采纳,获得10
9秒前
阿卡宁完成签到,获得积分10
9秒前
lzw完成签到 ,获得积分10
9秒前
沉静烧仙草完成签到,获得积分20
10秒前
烟花应助嘉嘉琦采纳,获得10
10秒前
隐形曼青应助科研通管家采纳,获得10
10秒前
Hello应助科研通管家采纳,获得10
11秒前
Ava应助科研通管家采纳,获得10
11秒前
上官若男应助科研通管家采纳,获得10
11秒前
11秒前
赘婿应助科研通管家采纳,获得10
11秒前
烟花应助科研通管家采纳,获得10
11秒前
FashionBoy应助科研通管家采纳,获得10
11秒前
英俊的铭应助科研通管家采纳,获得10
11秒前
在水一方应助科研通管家采纳,获得10
11秒前
accepted应助科研通管家采纳,获得10
11秒前
脑洞疼应助科研通管家采纳,获得10
11秒前
11秒前
cdh1994应助kcmat采纳,获得10
11秒前
我是老大应助科研通管家采纳,获得10
11秒前
乐乐应助科研通管家采纳,获得10
11秒前
FashionBoy应助科研通管家采纳,获得10
11秒前
11秒前
上官若男应助科研通管家采纳,获得10
11秒前
11秒前
11秒前
11秒前
高分求助中
【提示信息,请勿应助】关于scihub 10000
Les Mantodea de Guyane: Insecta, Polyneoptera [The Mantids of French Guiana] 3000
徐淮辽南地区新元古代叠层石及生物地层 3000
The Mother of All Tableaux: Order, Equivalence, and Geometry in the Large-scale Structure of Optimality Theory 3000
Global Eyelash Assessment scale (GEA) 1000
Picture Books with Same-sex Parented Families: Unintentional Censorship 550
Research on Disturbance Rejection Control Algorithm for Aerial Operation Robots 500
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 4038524
求助须知:如何正确求助?哪些是违规求助? 3576221
关于积分的说明 11374737
捐赠科研通 3305912
什么是DOI,文献DOI怎么找? 1819354
邀请新用户注册赠送积分活动 892688
科研通“疑难数据库(出版商)”最低求助积分说明 815048