Audit quality, accruals quality and the cost of equity in an emerging market: Evidence from Vietnam

Ha Thi Thu Le, Ha Giang Tran and Xuan Vinh Vo

International Review of Financial Analysis, 2021, vol. 77, issue C

Abstract: This study explores the relationship between audit quality, accruals quality, and the cost of equity in the context of Vietnam. Particularly, we examine the impact of auditor size and accruals quality on the industry-adjusted earnings – price ratio. Using a sample of Vietnamese listed companies, the study shows that firms audited by a Big Four auditor are associated with a lower cost of equity than firms with a non-Big Four auditor. The results indicate that the auditors' information role is more relevant than the insurance role in a civil law context with a relatively low auditor litigation risk. In addition, the findings show that companies with better accruals quality are associated with a lower cost of equity. The study has implications for managers and regulators. The findings highlight the importance of ensuring sound auditing practices and maintaining high-quality financial reporting for corporations.

Keywords: Audit quality; Accruals quality; Auditor size; Cost of equity; Vietnam stock market (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:77:y:2021:i:c:s1057521921001344

DOI: 10.1016/j.irfa.2021.101798

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