Exogenous Loss of Analyst Coverage and Choice of Audit Quality

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

3 Scopus Citations
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Detail(s)

Original languageEnglish
Pages (from-to)71-92
Journal / PublicationAccounting Horizons
Volume37
Issue number1
Online published16 Feb 2022
Publication statusPublished - Mar 2023

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Abstract

We show that a firm’s likelihood of appointing auditors with industry expertise or with a larger office increases after the firm is affected by an exogenous reduction in analyst coverage, relative to its matched control firms. This effect is stronger for affected firms with greater reductions in analyst monitoring, for smaller or younger firms, for firms with lower institutional or CEO ownership, and when the lost analysts are more effective monitors. We further show that affected firms that switch to high-quality auditors receive more positive market reaction, experience smaller decrease in stock liquidity and smaller increase in cost of equity capital relative to other affected firms, suggesting that audit quality has real payoffs. These results collectively provide causal evidence supporting the agency incentive driven demand for high-quality external auditing.

Research Area(s)

  • demand for high quality audit, agency cost explanation, loss in analyst coverage, brokerage mergers and closures

Citation Format(s)

Exogenous Loss of Analyst Coverage and Choice of Audit Quality. / Fung, Simon Yu Kit ; Wang, Zheng; Zhang, Liandong et al.
In: Accounting Horizons, Vol. 37, No. 1, 03.2023, p. 71-92.

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

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