Investigating the Relationship between Audit Quality and the Earning Response Coefficient of Listed Firms in Tehran Stock Exchange

Abstract

In this study, the relationship between audit quality and earning response coefficient of listed firms in Tehran stock exchange organization is investigated. In particular, the aim of present study is to investigate the relationship between variables such as audit firm size, auditor industry specialization, audit committee tenure, and earning response coefficient (ERC). In order to answer the research questions, one primary hypothesis and four secondary hypotheses are developed and tested on 100 firms selected from the firms listed in Tehran stock exchange (T.S.E). The applied method is a descriptive correlation research method. For testing the hypotheses, a combination of regression models and panel data were used. The results of this study indicate a direct meaningful relationship between audit firm size, auditor industry specialization and the length of auditor tenure on ERC. However, no meaningful relationship was observed between the existence of an audit committee with ERC. In general, this study found that increasing audit quality in firms leads to increase of ERC.

Keywords: Audit Quality, Abnormal Return, Unexpected Earning, Earning Response Coefficient.