An Empirical Study On The Size Of Audit Firm And Earnings Quality

It is an important topic in the audit research that whether audit firms of different size have different influence on the earnings quality of the company. In our country, there hasn't been agreement on this topic. Based on pectination of the literature concerned, taking all the listed companies and their audit firms from 2002 to 2004 as the research samples, this thesis makes researches on the topic.First, this thesis analyzes classifications of audit firms by adopting principal component-cluster analysis method. Then, adopting the modified DD Model to measure the earnings quality, this thesis makes researches on the influence that the audit firms of different size have on the earnings quality, by using the method of grouping and contrast. The results show that in Chinese audit market there has been formed a relatively stable group of"Big Firms", including 5 domestic cooperative firms of the Big4 and 6 local biggest firms. These 11 biggest firms are greatly different from other small-and-medium-size audit firms, but there is no great difference between the earnings quality audited by 11 biggest firms and the other small-and-medium-size audit firms. The results also show that the earning quality audited by the Big4 is much better than that by other firms, and there is no great difference between the 6 local biggest firms and the other small-and-medium-size audit firms.Analyzing classifications of audit firms by adopting principal component-cluster analysis method and measuring the earnings quality by adopting the modified DD Model is the innovation of the thesis.This thesis includes four chapters.Chapter 1 is the literature review. This chapter briefly introduces the definition and measure models of earnings quality, the classification of audit firms, and the relation between the size of audit firm and earnings quality.Chapter 2 is the study on the classification of the audit firms by size adopting principal component-cluster analysis method.Chapter3 is the empirical study on the relation between the size of audit firm and earnings quality.Chapter4 is the conclusion.