The Influence Of Auditor Independence Regulation

The Influence of Auditor Independence Regulation on Earnings Quality: An
Empirical Analysis of Firms Cross-Listed in the US#

Roger Meuwissen
Universiteit Maastricht
Frank Moers
Universiteit Maastricht
Erik Peek
Universiteit Maastricht
Ann Vanstraelen
Universiteit Antwerpen and Universiteit Maastricht

September 2003

#

Corresponding author is Ann Vanstraelen. E-mail address: [e-mail]. Adress for correspondence: Department of Accounting and Information Management, Faculty of Economics and Business
Administration, Universiteit Maastricht, P.O. Box 616, 6200 MD Maastricht, The Netherlands. This paper has benefited from helpful comments of accounting seminar participants at the 2003 Euroconference on ‘Financial
Reporting and Regulatory Practices in Europe’ in Corsica and the 2003 International Symposium on Audit Research
(ISAR) in Pasadena. The authors thank METEOR (Maastricht Research School of Economics of Technology and
Organizations) for financial support.

The Influence of Auditor Independence Regulation on Earnings Quality: An
Empirical Analysis of Firms Cross-Listed in the US

Abstract:
This paper addresses the question whether the quality of earnings of firms cross-listed in the US is a function of the strictness of auditor independence regulation. Our assumption is that firms cross-listed in the US face similar earnings management incentives as well as enforcement and litigation. Our results contribute to the auditing literature by providing evidence that companies subject to similar capital market pressures report higher quality earnings when domiciled in a country with more stringent auditor independence regulation. In particular, our results suggest that cross-listed firms domiciled in countries with stricter auditor independence regulation have more informative accruals, engage less in accrual-based earnings management and are less likely to avoid small losses and earnings decreases. In the aftermath of recent business failures, our

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