Audit quality and earnings management for Taiwan IPO firms

Ken Y. Chen, Kuen‐Lin Lin and Jian Zhou

Managerial Auditing Journal, 2005, vol. 20, issue 1, 86-104

Abstract: Purpose - This paper investigates the relationship between audit quality (as measured by auditor size and industry specialization) and earnings management (as measured by unexpected accruals) for Taiwan IPO firms. Design/methodology/approach - First uses unexpected accruals in the modified Jones model to measure earnings management in the IPO process. Then uses auditor type (big five versus non‐big five) and industry specialist to measure audit quality. The hypothesis predicts that Taiwanese firms with higher quality auditors engage less in earnings management in the IPO process. The sample consists of 367 new issues between 1999 and 2002 from theTaiwan Economic Journaldatabase. Findings - It is found that big five auditors are related to less earnings management in the IPO year in Taiwan. This shows that higher quality auditors constrain earnings management for Taiwan IPO firms. Research limitations/implications - The finding shows that high quality auditors constrain earnings management and provide more precise information. This is important, given that management has incentive to engage in earnings management in the IPO process to garner greater proceeds and at‐issue earnings management is negatively related to post‐issue earnings performance and stock returns. Practical implications - The research might be of interest to investors in IPO firms, given that at‐issue unexpected accruals are opportunistic. Originality/value - The study contributes to the literature in that it shows that audit firm size is an important determinant in earnings management for Taiwan IPO firms.

Keywords: Quality audit; Earnings; Taiwan (search for similar items in EconPapers)
Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:majpps:02686900510570722

DOI: 10.1108/02686900510570722

Access Statistics for this article

Managerial Auditing Journal is currently edited by Professor Jie Zhou

More articles in Managerial Auditing Journal from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().