Auditor’s Characteristics and Earnings Management in India

Abstract

This study investigates whether auditor’s characteristics such as its independence and professional quality act as a deterrent to earnings management in India. The existing evidence on the relationship of auditor’s independence and quality with earnings management is not conclusive. The said relationship has not been examined in the context of Indian companies. The study uses a panel data of 1,600 firm years. The study provides evidence on the presence of knowledge spillover hypothesis as negative relationship is found between fees for non-audit services and earnings management. The study does not find any significant relationship of EM with industry specialization of the auditor and size of the auditor. The results are consistent under various robustness checks.