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Non-audit services, auditor quality and the value relevance of earnings

Gul, Ferdinand, Tsui, Judy and Dhaliwal, Dan S. 2006, Non-audit services, auditor quality and the value relevance of earnings, Accounting and finance, vol. 46, no. 5, pp. 797-817, doi: 10.1111/j.1467-629X.2006.00189.x.

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Title Non-audit services, auditor quality and the value relevance of earnings
Author(s) Gul, Ferdinand
Tsui, Judy
Dhaliwal, Dan S.
Journal name Accounting and finance
Volume number 46
Issue number 5
Start page 797
End page 817
Total pages 21
Publisher Wiley-Blackwell
Place of publication Chichester, Eng.
Publication date 2006-12
ISSN 0810-5391
1467-629X
Keyword(s) audit quality
auditor independence
earnings
non-audit services
value relevance
Summary This paper tests the hypothesis that there is an inverse relation between non-audit services (NAS) provided by a firm auditor and the value relevance of earnings(measured as the earnings response coefficient) and that this relation is weaker for firms with Big 6 auditors. The hypothesis is based on anecdotal evidence and previous research that suggests that the provision of NAS by the external auditor is likely to adversely affect investors’ perceptions of the credibility of financial reports, and that Big 6 auditors, because of reputational capital and litigation costs,are likely to mitigate the adverse effects of NAS. Results using 840 firm-year observations of Australian companies document a statistically significant inverse relationship between NAS and the value relevance of earnings, and this inverse relationship is weaker for Big 6 auditors, therefore supporting the hypothesis.
Language eng
DOI 10.1111/j.1467-629X.2006.00189.x
Field of Research 150103 Financial Accounting
1501 Accounting, Auditing And Accountability
1502 Banking, Finance And Investment
Socio Economic Objective 970115 Expanding Knowledge in Commerce
HERDC Research category C1.1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2006, AFAANZ
Persistent URL http://hdl.handle.net/10536/DRO/DU:30086530

Document type: Journal Article
Collection: Department of Accounting
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