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Prior research had documented that The Big 4 auditors have higher audit qualitythan non-Big 4 auditors (Teoh and Wong 1993), and The Big 4 auditors with industryspecialization have higher audit quality than The Big 4 auditors without specialization(Balsam eta/. 2003; Knechel eta/. 2007; Behn et al. 2008; Romanus et al. 2008). Withthe sample of 139 firm years from manufacturing public companies listed in Bursa EfekIndonesia in the year 2005 and 2006, this study examines whether the public companiesaudited by The Big 4 auditors has higher earnings quality (measured by earningresponse coefficient) than the non-Big 4 auditors. This study also examines whether TheBig 4 auditors with industry specialization has higher earnings quality than The Big 4auditors without industry specialization. This study provides no evidence that there isan earnings quality difference between public companies audited by The Big 4 auditorsand non-Big 4 auditors, and between auditors with industry specialization and withoutspecialization. The additional tests on public companies audited by non-Big 4 auditorsprovide no evidence whether there is an association beflveen CAR and unexpectedearning (UER). Consistent with the main result, the sensitivity test on specializationmeasurement also give evidence that The Big 4 auditors are not differ from the non-Big4 auditors. This study provides some evidence, consistent with prior studies that themarket negatively reacts higher on the companies with negative unexpected earnings,and with higher leverage; and positively reacts higher on the high growth companiesaudited by The Big 4 auditors. This study leaves some ambiguous results regardingthe audit quality of auditors and earning quality of public companies in the contextof Indonesia, and provides some opportunities for further indepth research in theseareas. |
