Non-audit services and the value relevance of accounting information: a case study

Fan, Hung Shu; Chen, Ching Lung; Jung, Tyson

doi:10.1504/ijrm.2010.030032

Cited by 1 publication

(2 citation statements)

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“…10 For example, a negative association between the ERC and NAS fees indicates that investors perceive that purchasing additional NAS weakens the quality of earnings. Several prior studies find such a negative association (Francis & Ke, 2006;Frankel, Johnson, & Nelson, 2002;Gul, Tsui, & Dhaliwal, 2006;Krishnan, Sami, & Zhang, 2005;Lim & Tan, 2008), but other studies only find that ERC and NAS are negatively associated under restrictive conditions (Eilifsen & Knivsflå, 2013;Higgs & Skantz, 2006) To test our hypotheses, we use earnings-response regressions based on the annual returns-earnings relation 11 (Campa & Donnelly, 2016;Eilifsen & Knivsflå, 2013;Fan, Chen, & Jung, 2010;Ghosh et al, 2009;Gul et al, 2006;Holland & Lane, 2012;Lai & Krishnan, 2009). This is the first capital market study in the German environment on the effect of NAS and its components on investors' perceptions of earnings quality.…”

Section: Prior Research and Hypothesesmentioning

confidence: 98%

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Investors' perceptions of nonaudit services and their type in Germany: The financial crisis as a turning point

et al. 2018

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As a result of mistrust in the auditing profession, legislators and regulators continue to impose restrictions to the joint provision of audit and nonaudit services (NAS) to protect investors' interests. However, investors may perceive NAS differently than legislators, and it is an open question whether a ban on NAS always aligns with investors' interests. Little evidence exists on investors' perceptions of auditor‐provided NAS in the continental European regulatory environment, including Germany. The unique features of the German legal and regulatory environment raise questions of its ability to comfort investors that auditors resist client‐induced biases in financial reporting. To empirically investigate and test this, we use earnings response coefficients (ERC) to measure investors' perceptions of earnings quality and examine the associations between ERC and NAS fees. Surprisingly, we do not find significant associations between ERC and NAS fees for our entire sample period 2005–2015. For further examination, we split the sample before and after the financial crisis in 2008–2009. The findings indicate that, in the pre‐financial crisis period 2005–2007, investors perceive large NAS fees negatively, and this concern also extends to the components of the NAS fees. In contrast, in the post‐financial crisis period 2010–2015, investors perceive large NAS fees positively and favorable perceptions of tax services are the driver of this result. We discuss the findings in light of the regulatory initiatives in the aftermath of the financial crisis, and the recent EU supranational prohibitions of NAS and the German application of these.

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Section: Prior Research and Hypothesesmentioning

confidence: 98%

“…To test our hypotheses, we use earnings‐response regressions based on the annual returns–earnings relation (Campa & Donnelly, ; Eilifsen & Knivsflå, ; Fan, Chen, & Jung, ; Ghosh et al, ; Gul et al, ; Holland & Lane, ; Lai & Krishnan, ).…”

Section: Prior Research and Hypothesesmentioning

confidence: 99%