The great interest of auditing literatures is to investigate reasonable audit quality of audit firms or auditors. The selection of auditors between Big 4 and Non-Big 4 continuously receives much attention by stakeholders. In this study, I examine whether Big 4 and Non-Big 4 differences in audit quality proxies are attributed to client characteristics in Korean setting, similar to Lawrence et al. (2011) using U.S. firms. In my analysis, I use two audit-quality proxies – discretionary accruals and the magnitude of conservatism – and employ propensity-score matched model to control the client characteristics differences between two clienteles while estimating the audit-quality effects. Comparing ordinary least square regression and propensity-score matched model results, I find the treatment effects of Big 4 auditors are significantly different from those of Non-Big 4 auditors with respect to discretionary accruals, but insignificantly different from those of Non-Big 4 auditors with respect to the magnitude of conservatism. My results suggest that the differences in these proxies between Big 4 and Non-Big 4 auditors depend on the types of audit-quality measures used for Korean client firms, meaning discretionary accruals results between Big 4 and Non-Big 4 are not a reflection of their respective clients’ characteristics while conservatism results are. I caution the reader that this study does not fully answer the question of such audit-quality differences, but the future research should explore the alternative methodologies to separate client characteristics from the audit-quality effects.
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Are Big 4 Auditors Different from Non-Big 4 Auditors in terms of Audit Quality? - Evidence from Korean Firms
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