Does Auditors' Reputation 'Discourage' Related Party Transactions? The French Case

Abstract : Regulators, standard setters and market participants consider related party transactions a major problem in financial markets. The quality of external auditing may be proposed as an important governance mechanism to alleviate the propensity of insiders to use related party transactions. We test the prevalence of audit quality to reduce the number of these transactions. We consider that audit quality is positively correlated with audit reputation. We use a unique data set with a sample of 85 French firms over the period 2002-2005. The French legal system allows us to concentrate on the reputation dimension of audit firms, as a motivation that mitigates the propensity of insiders to initiate related-party transactions. The results show that high quality external audit firms reduce significantly the frequency of related-party transactions. The effect of audit quality seems to be the most important variable explaining the frequency of related-party transactions. These results are obtained after controlling for the selection bias related to the choice of external auditors, using a two-step Heckman procedure.
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Communication dans un congrès
International Symposium on Audit Research, Jun 2011, Québec, Canada
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https://hal-rbs.archives-ouvertes.fr/hal-00714209
Contributeur : Sandrine Palmer <>
Soumis le : mardi 3 juillet 2012 - 16:12:45
Dernière modification le : mardi 3 juillet 2012 - 16:12:45

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  • HAL Id : hal-00714209, version 1

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Moez Bennouri, Mehdi Nekhili, Philippe Touron. Does Auditors' Reputation 'Discourage' Related Party Transactions? The French Case. International Symposium on Audit Research, Jun 2011, Québec, Canada. 〈hal-00714209〉

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