%0 Journal Article
%T Earnings Management and Auditor Quality
%A Savita Sahay
%A Harry ZviDavis
%A Meyer Peikes
%J Accounting and Finance Research
%D 2012
%I 
%R 10.5430/afr.v1n1p38
%X This paper analyzes the relationship between a firm¡¯s demand for different quality auditors and opportunities for earnings management.In our model, the firm simultaneously chooses the bias it introduces into its pre-audited earnings and the quality of its auditor. We show that firms that choose a highlevel of bias also choose a low-quality auditor, even though the market-maker makes a correction for the level of residual bias in audited reports. Firms that choose a low level of bias choose a high-quality auditor.We also study the effect of changes in the regulatory environment on the market equilibrium.Our analysis shows that stricter regulation leads to more firms choosing low-quality auditors, thus it is not in the interest of high quality auditors to support such measures.
%U http://www.sciedu.ca/journal/index.php/afr/article/view/1078