Audit quality and information asymmetry between traders

Greg Clinch*, Donald Stokes, Tingting Zhu

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

16 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)743-765
Number of pages23
JournalAccounting and Finance
Volume52
Issue number3
DOIs
Publication statusPublished - 1 Sep 2012
Externally publishedYes

Keywords

  • Audit quality
  • Earnings quality
  • Information asymmetry
  • M42

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