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The Effect of External Auditors on Managerial Slack.
- Source :
- Accounting Horizons; Dec2018, Vol. 32 Issue 4, p85-115, 31p, 10 Charts
- Publication Year :
- 2018
-
Abstract
- SYNOPSIS: We investigate the role of external auditors in constraining managerial slack. Using panel data on Chinese public firms, we find that firms hiring Big 8 auditors are associated with reduced managerial slack after controlling for the endogenous auditor choice. We also document that Big 8 auditors are more effective in mitigating slack in privately controlled firms and firms located in more developed regions. Moreover, we show that international Big 4 auditors are more effective than the domestic Big 4, and the Big 8 effect is more salient in more competitive and less regulated industries, and in industries with higher litigation risks. Finally, we document a positive relationship between managerial slack and audit fees, particularly in the presence of Big 8 auditors. Overall, our results suggest that high-quality external auditors play an important corporate governance role by serving as both bonding and controlling mechanisms to mitigate managerial exploitation of firm resources. Data Availability: Data are publicly available from sources identified in the article. [ABSTRACT FROM AUTHOR]
- Subjects :
- AUDITORS
DISCRETIONARY income
AUDITING fees
PROFIT maximization
Subjects
Details
- Language :
- English
- ISSN :
- 08887993
- Volume :
- 32
- Issue :
- 4
- Database :
- Complementary Index
- Journal :
- Accounting Horizons
- Publication Type :
- Academic Journal
- Accession number :
- 134181895
- Full Text :
- https://doi.org/10.2308/acch-52137