Earnings Management and Firm Attributes as Predictors of Audit Opinions: Evidence from Bangladesh’s Pharmaceutical and Chemical Industries

Kawsar Jahan and Apurba Ghosh
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Kawsar Jahan: Department of Accounting, University of Dhaka, Bangladesh.
Apurba Ghosh: Department of Accounting, University of Dhaka, Bangladesh.

International Journal of Science and Business, 2026, vol. 53, issue 1, 1-21

Abstract: This study aims to identify whether auditors’ reporting decisions are significantly driven by firms’ earnings management and other firm specific characteristics for DSE-listed Pharmaceutical and Chemical Industries by addressing the likelihood of receiving qualified opinion. The absolute value of discretionary accruals is used as a proxy for earnings management, based on the modified Jones model, and logistic regression is used due to the binary nature of the dependent variable, audit report type. Some control variables are included as firm specific determinants and data have been collected from 22 pharmaceutical and 12 chemical companies, which together comprise 34 DSE-listed companies, and a balanced panel data set was used over a seven-year period (2018–2024) for the empirical research. Results of the study prescribed that earnings management, leverage, audit delay, inventory intensity, previous year losses and prior year losses have a significant and positive association with the likelihood of receiving a qualified audit opinion. Other firm attributes like firm size, total liabilities to equity ratio and turnover tend to diminish it. All the Big 4 auditors provide an unqualified opinion, and profitability enhances the probability of qualifications. The outcomes of the analysis emphasize the importance of financial reporting behavior, transparent judgments, useful monitoring, and disciplined corporate management in order to intensify the overall audit quality and investor confidence. This study offers sector-specific empirical evidence from Bangladesh’s capital market and provide new insights in the measurement of audit opinion determinants in an emerging economy.

Keywords: Earnings Management; Audit Opinion; Audit Report Types; Logistic Regression; Pharmaceutical and Chemical Sector; Dhaka Stock Exchange (DSE) (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:aif:journl:v:53:y:2026:i:1:p:1-21

DOI: 10.58970/IJSB.2701

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