Abstract
This paper treats the relation between institutional shareholders, auditor's choice and earning management after the Enron collapse in French context. This context is characterized by the weak of investor protection compared to Common Law countries and the presence of the higher ownership concentration. Three hypotheses are tested around this question. The Empirical results demonstrate that institutional investor has more incentives to control the manager opportunism through the discretionary accruals and influence negatively the appointment of the Big 4 auditors after Enron collapse.
Highlights
According to DeAngelo (1981), audit quality is the probability that the auditor will both detect and report a breach in the contract to provide fair accounting information
The nationality of the institutional shareholders is generally coming from common Law countries and exactly US, UK and Canadian investors
Focusing on descriptive statistics summarizes (Table 3), the decrease of the institutional ownership is equal to 1% in the case of Big 4 subsample after Enron Scandal
Summary
According to DeAngelo (1981), audit quality is the probability that the auditor will both detect and report a breach in the contract to provide fair accounting information. Enron-Andersen was the matter example in the World The consequence of this failure was very significant in particular on the Financials market. Cahan and Zhang (2006) found that share prices of Arthur Andersen clients reacted negatively between December 12th, 2001 and February 4th, 2002. This results signals that the reputation of large audit firms was damaged. This is new evidence and influences the audit market concentration after Enron failure (Asthana et al 2003). This new feature of the audit market is a new opportunity for Non-Big 4 to justify their conservatism through their services
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