Perceived Auditor Quality and the Earnings Response Coefficient (ERC)
Researchers Siew Hong Teoh and T.J. Wong (1990) Documentation The Accounting Review Vol. 68 No. 2, April 1993, pp. 345-368 Purpose To find out the relationship between audit quality and earnings management. Method This study applied a single analytical formulae to relate the response to stock price and stock signal precision. Theory used int this study was a theory of single information signal (Holthausen and Verrecchia, 1998). The study used samples from industrial firm database of the Compustat. The firms were also listed on NYSE, AMEX, and NASDAQ. The samples were divided into two major groups: Big Eight (B8) and Non-Big Eight (NB8), in which the latter group consisted of firm-pairs which had been removed from the B8 to the NB, and vise versa. Results The clients' ERC in the B8 group was statistically higher than that of NB8. This result supported the conclusions of the previous studies that there were effects from several explanatory factors such as growth and pe...