Earnings information quality and audit firms: evidence in Brazil

Abstract

We investigate the differences, in terms of information quality measure through the attribute of the conditional conservatism, between the earnings of Brazilian public companies traded on BM&FBovespa audited by the Big Four and by other audit firms. The tests on conservatism level were performed by measuring asymmetric loss recognition timeliness contained in the coefficients of the models developed by Basu (1997) and Ball and Shivakumar (2005). The sample consisted of 597 companies in the period 2001 to 2010. Regression was used with unbalanced panel data, processed by the GMM-SIS. The research hypothesis is that public companies audited by Big Four firms present a level of conservatism significantly greater than that contained in the financial statements of companies audited by other independent firms. The search findings do not allowed to accept the hypothesis, because in two models detected distinction in the level of conservatism between the two groups considered, while the third model indicated that the reported earnings for companies not audited by Big Four firms are more conservative than the earnings of the audited.