The Effect of the Auditors’Industry Expertise on Value Relevance
Asian Tax Journal Vol. 15 No. 4 (2014), pp. 173-201
Abstract
This study investigates whether the value relevance of earnings and equity is associated with theauditors’ industry expertise. Prior studies related with value relevance suggest that value relevanceis closely associated with earnings quality. In the respect, if the auditors’ industry expertiseincreases earnings quality of auditee, we expect relation between price and the ‘auditors’ industryexpertise×earnings’ to be positive, and relation between price and the ‘auditors’ industry expertise×equity’ to be negative respectively. We examine the coefficient for interaction term(auditors’ industry expertise×earnings andauditors’ industry expertise×equity) using the approach of Ohlson model(1995). For a sample ofnon－financial listed firms(KOSPI) during 2000－2011, we find statistically significant positivecoefficient for the interaction term(auditors’ industry expertise×earnings and auditors’ industryexpertise×equity) consistent with our expectations. The evidence suggests that auditors’ industry expertise potentially provides insights intoinvestors consider before their portfolio selection. This study contributes to extant literature onvalue relevance by providing evidence auditors’ industry expertise affects investor’ portfolioselection.
Keywords
- Auditors’ Industry Expertise
- Value Relevance
- Earnings Quality
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