Quality of the external auditor, information asymmetry, and bid‐ask spread

Abstract

Purpose The purpose of this paper is to examine the relationship between information asymmetry and the quality of the external audit in the Tunisian capital market. Design/methodology/approach The paper uses panel data methodology. Findings The results show that the bid‐ask, a market‐based measure of information asymmetry, is negatively related to the employment of an industry specialist and big auditors; and positively related to audit firm tenure. However, further tests refine those conclusions, in that the positive association between tenure and bids‐ask spread differs between specialist and non‐specialist auditors and between Big 4 and non‐Big 4 auditors. Specifically, the paper finds that bid‐ask spreads is increasing in tenure for clients of non‐specialist and clients of non‐Big 4. Research limitations/implications The difficulties in specifying correct models for determining the audit quality, the research analyze the auditor's quality such as big auditor, tenure, and specialist. The paper leaves this and other issues for future research. Originality/value Analyzing the effect of auditor's quality on information asymmetry and bid‐ask spreads is an emerging economy such as Tunisia is very appealing because earnings quality is the most important quality investors look for. And this research makes a link between two important areas of auditing and finance.

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