Articlegreen2011

Audit quality and information asymmetry between traders

Greg Clinch · Donald J. Stokes · Tingting Zhu

90 citations0/0 files storedAccounting and Finance

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Auditing, Earnings Management, Governance Financial Markets and Investment Strategies Corporate Governance and Financial Management

Abstract

Abstract In this study, we investigate the association between audit quality and information asymmetry between informed and uninformed traders. We employ three proxies for information asymmetry – absolute price differences, absolute volatility differences, and absolute differences in the long/short ratio of trades – between US stock and options markets and represent audit quality through the appointment of Big n and industry specialist auditors. For a sample of 4062 firm‐years between 2002 to 2005, our results indicate that the appointment of Big n and industry specialist auditors is associated with lower information asymmetry measures. Our results are consistent with audit quality playing a role in the quality of financial reporting information and flowing through to the allocation of information among traders.

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References

1981Auditor size and audit quality 2016“Options, Futures, and Other Derivatives”1996Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC*2005The market pricing of accruals quality 1980The Pricing of Audit Services: Theory and Evidence 2006Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches 2001Essays on disclosure 1987Constraints on short-selling and asset price adjustment to private information

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