Choice of auditors and earnings management during the Asian financial crisis
Abstract
Purpose
This study sets out to examine the effect of the choice of auditors in constraining earnings management within a rule‐based reporting framework during the Asian financial crisis.
Design/methodology/approach
Using the iterative seemingly unrelated regression methodology, 383 firm‐observations of service‐oriented listed companies in Singapore are analysed.
Findings
The results show that service‐oriented companies engage in income decreasing earnings management during the crisis period. More importantly, the results indicate that only the Big‐6 firms are able to significantly constrain the earnings management of managers of such companies.
Practical implications
The ability of Big‐6 firms to constrain earnings management is perceived to add credibility to the quality of reported earnings, and hence contributes to the competitive advantage of the Big‐6 firms in the market for auditing services.
Originality/value
The evidence contributes to the literature on corporate governance and the competitiveness of the market for audit services in the context of an economy‐wide financial crisis from an Asian perspective.
Keywords
Citation
Ming Chia, Y., Lapsley, I. and Lee, H. (2007), "Choice of auditors and earnings management during the Asian financial crisis", Managerial Auditing Journal, Vol. 22 No. 2, pp. 177-196. https://doi.org/10.1108/02686900710718672
Publisher
:Emerald Group Publishing Limited
Copyright © 2007, Emerald Group Publishing Limited