Audit quality and information asymmetry between traders |
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Authors: | Greg Clinch Donald Stokes Tingting Zhu |
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Institution: | 1. Department of Accounting and Business Information Systems, University of Melbourne, Melbourne, Australia;2. Department of Accounting and Finance, Monash University, Melbourne, Australia;3. School of Finance and Statistics, East China Normal University, Shanghai, China |
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Abstract: | In this study, we investigate the association between audit quality and information asymmetry between informed and uninformed traders. We employ three proxies for information asymmetry – absolute price differences, absolute volatility differences, and absolute differences in the long/short ratio of trades – between US stock and options markets and represent audit quality through the appointment of Big n and industry specialist auditors. For a sample of 4062 firm‐years between 2002 to 2005, our results indicate that the appointment of Big n and industry specialist auditors is associated with lower information asymmetry measures. Our results are consistent with audit quality playing a role in the quality of financial reporting information and flowing through to the allocation of information among traders. |
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Keywords: | Audit quality Information asymmetry Earnings quality M42 |
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