Abstract
SYNOPSIS We examine (1) the association between global-level and joint global-, national-, and city-level auditor industry specialization and audit clients’ cost of equity capital and (2) how the national investor protection environment impacts the preceding association. Our results indicate that cost of equity capital is negatively associated with global-level and joint global-, national-, and city-level auditor industry specialization. This relation is incrementally more negative when the auditor is a joint global-, national-, and city-level industry specialist than when the auditor is not a global-level industry specialist. We also find the negative relation between cost of equity capital and joint global-, national-, and city-level auditor industry specialization holds only in countries with strong investor protection. We further show investors perceive potential accentuation of accruals quality and ownership concentration on cost of equity is mitigated by joint global-, national-, and city-level specialist auditors. JEL Classifications: M42; G32; K49.
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