Does Tightening Auditing Standards Improve or Impair Welfare?
type: CreativeWork
description: This study investigates the effects of tightening auditing standards in a setting of an oligopolistic audit market and a competitive capital market. I look at how tightening auditing standards affects audit quality, audit fee, audit market share, stock price, and investment decisions. Two audit firms engage in a two-stage competition: audit quality competition and audit fee competition. Audit quality has a dual role: (a) audit quality affects the credibility of the accounting reports (precision effect); (b) a company’s choice of a high-quality versus a low-quality audit firm signals its hidden information about its economic prospects (signaling effect). I find that tightening auditing standards will improve the credibility of accounting reports of those companies that stick to original auditors and impair the credibility of accounting reports of those companies that switch auditors.
abstract: This study investigates the effects of tightening auditing standards in a setting of an oligopolistic audit market and a competitive capital market. I look at how tightening auditing standards affects audit quality, audit fee, audit market share, stock price, and investment decisions. Two audit firms engage in a two-stage competition: audit quality competition and audit fee competition. Audit quality has a dual role: (a) audit quality affects the credibility of the accounting reports (precision effect); (b) a company’s choice of a high-quality versus a low-quality audit firm signals its hidden information about its economic prospects (signaling effect). I find that tightening auditing standards will improve the credibility of accounting reports of those companies that stick to original auditors and impair the credibility of accounting reports of those companies that switch auditors.
author: Ruan, Lijun
language: eng
keywords: Auditing standards, Audit fee, Audit quality, Capital markets
date published: 2019-05
date modified: 2026-07-24T02:31:47Z
provider: University of Houston
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: University of Houston

PropertyValue
property ID: Handle
value: https://hdl.handle.net/10657/5815