Auditor flow and financial statement comparability: Evidence from audit firm mergers in China

The Moderating Effect of Firm Characteristics on the Relationship between the Audit Style and Firm-pair Earnings Comparability: An Evidence from Listed Firms on the Egyptian Stock Exchange

“…It is also noted that there is a positive and significant relationship between the differences in leverage and differences in DAs since the coefficient of Diff_Lev is 0.6374 and the p-value < 0.05. This result contradicts with findings of some studies (Cao et al, 2016;Chen et al, 2020;Francis et al, 2014;Jiu et al, 2020;Kawada, 2014;Mohseni et al, 2014). However, from the researcher's viewpoint, it is more logical that the relation between the differences in leverage and differences in DAs to be positive, since the lower the differences in leverage between firm-pairs, the lower the differences in their DAs, in turn.…”

“…It is also noted that there is a positive and significant relationship between the differences in firm size and differences in DAs since the coefficient of Diff_Size is 0.3805 and the p-value < 0.05. This result is consistent with Cao et al (2016) while contradicts with findings of some studies (Chen et al, 2020;Francis et al, 2014;Jiu et al, 2020;Kawada, 2014;Mohseni et al, 2014). Accordingly, the evidenced negative and significant effect of the interaction between the firm size and audit style is logical and as expected, since if firm-pairs are audited by the same audit firm, and have lower 2 According to Pallant (2016), if the largest Variance Inflation Factor (VIF) value is greater than 10, the model would be subject to multi-collinearity problem, i.e., high correlations between independent variables.…”

“…In this context, several studies (Cao et al, 2016;Chen et al, 2020;Francis et al, 2014;Jiu et al, 2020;Kawada, 2014;Mohseni et al, 2014) have agreed on the negative impact of the leverage ratio on the financial statements' comparability. Noting that, these studies have addressed the leverage ratio as a control variable, however, from the researcher's viewpoint, the leverage ratio can interact with the audit style in affecting the strength and/or the direction of the relationship between the audit style and firm pairs' earnings comparability.…”

“…The current research follows the second method, using the accruals-differences between firm-pairs in each industry-year, hence controlling for economic conditions. Accruals are an important component of earnings, and it is expected that each firm-pair in the same industry audited by the same audit firm is more likely to have similar accounting systems resulting in low differences in accruals, hence more comparable earnings (Cao et al, 2016;Chen et al, 2020;Francis et al, 2014;Jiu et al, 2020;Kawada, 2014).…”

“…Regarding the determinants of the financial statements' comparability, prior studies have focused on the adoption of IFRS (e.g., Barth et al, 2012;Brochet et al, 2013;DeFond et al, 2011;Lin et al, 2019), the effectiveness of the audit committee (e.g., Endrawes et al, 2020), and the audit style (e.g., Cao et al, 2016;Chen et al, 2020;Francis et al, 2014;Jiu et al, 2020;Kawada, 2014). Audit style means that each audit firm has its own internally developed working rules that interpret the accounting and auditing standards and guide its auditors when implementing the audit process.…”