Under the assumption that audit quality relates positively to unobservable financial reporting quality, we investigate whether audit quality is associated with the predictability of accounting earnings by focusing on analyst earnings forecast properties. The evidence shows that analysts' earnings forecast accuracy is higher and the forecast dispersion is smaller for firms audited by a Big 5 auditor. We further find that auditor industry specialization is associated with higher forecast accuracy and less forecast dispersion in the non‐Big 5 auditor sample but not in the Big 5 auditor sample. Overall, our results suggest that high‐quality audit provided by Big 5 auditors and industry specialist non‐Big 5 auditors is associated with better forecasting performance by analysts.
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Research Article| March 01 2008
Audit Quality and Properties of Analyst Earnings Forecasts
Bruce K. Behn;
Online ISSN: 1558-7967
Print ISSN: 0001-4826
American Accounting Association
The Accounting Review (2008) 83 (2): 327–349.
Bruce K. Behn, Jong‐Hag Choi, Tony Kang; Audit Quality and Properties of Analyst Earnings Forecasts. The Accounting Review 1 March 2008; 83 (2): 327–349. https://doi.org/10.2308/accr.2008.83.2.327
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