Carol Callaway Dee, Ayalew Lulseged, Tianming Zhang
The Accounting Review,Vol. 90, Issue 5, Pages: 1939-1967.
We empirically test whether audit quality is affected when part of an SEC issuer’s audit is outsourced to auditors other than the principal auditor (“participating auditors”). We find a significantly negative market reaction and a significant decline in earnings response coefficients (ERCs) for experimental issuers disclosed for the first time as having participating auditors involved in their audits. However, we find no market reaction and no decline in ERCs for a matching sample of issuers that are not disclosed as using …