The Effect of Auditor expertise on Earnings Quality and Stock Price Synchronicity

Document Type : Research Paper


1 professor



In this study, we examine the effect of earnings quality on stock price synchronicity; Moreover the effect of auditor industry expertise on the effect of earnings quality on stock price synchronicity has been investigated. Stock price synchronicity is a relative measure of firm-specific information versus industry and market-wide information which have been impounded in stock price. The statistical population of study include firms listed in Tehran stock exchange and over the counter of Iran. In order to do the research, the information of 87 publicly-held companies listed in Tehran Stock Exchange and over the counter of Iran were examined as the statistical sample, by using the multivariate regression model and panel data, the analysis was done and hypothesis tested. The result of the study shows that earnings quality has significantly negative effect on stock price synchronicity and auditor industry expertise as a moderating variable intensifying earnings quality effect. In other words, auditor industry expertise via its interaction with earnings quality decreases stock price synchronicity.


Ahmadpour, A. & Peikarnegar Gale- Rudkhani, S. (2012).The Relationship between Components of Accruals Quality and Price Synchronicity in Tehran Stock Exchange Companies. Quarterly Journal of Securities Exchange, 7(27): 137-151. (in Persian)
Ahmadpour, A. & Peikarnegar Gale-Rudkhani, S. (2012). Investigating the Relationship between Earning Quality and Stock Price Synchronicity in listed company of Tehran stock exchange. Managerial Engineering magazine, 4(40): 82-88. (in Persian)
Balsam, S., Krishnan, J. & Yang, J. S. (2003). Auditor Industry Specialization and earnings quality.Auditing: A Journal of Practice & Theory, 22(2): 71-97.
Bhattacharya, N., Desai, H. & Venkataraman, K. (2013). Does Earnings Quality Affect Information Asymmetry? Evidence from Trading Costs. Contemporary Accounting Research, 30(2): 482-516.
Chen, S., Gul, F. A. & Zhou, J. (2013). Do Analysts Incorporate Market/Industry-Wide or Firm-Specific Information into Stock Price: Some Evidence on the Role of Earnings Quality. Industry-Wide or Firm-Specific Information into Stock Price, (October 6, 2013). Available in: 2360901.
Cheng, C. S., Johnston, J. A. & Zhou, L. (2012). Earnings Quality and Price Synchronicity: Industry-Wide and Firm-Specific Information. Available at
Dolou, M. & Emami, A. (2015). Investigating The relationship between Stock Price Synchronicity and Liquidity: Evidence from Tehran Stock Exchange (TSE).Quarterly Journal of Securities Exchange, 8(29): 3-22. (in Persian)
Ebrahimi kordlar, A. & Seyedi, S. (2009).The Role of Independent Auditor in reducing Discretionary Accrual. The Iranian Accounting And Auditing Review, 15(54): 3-16. (in Persian)
Etemadi, H., Mohammadi, A. & Nazemi Ardakani, M. (2009). The Relationship between Audit Industry Specialization and Earning Quality in listed company of Tehran stock exchange. Journal of Financial Accounting Research, 1(1): 17-32.
Ferreira, M. A. & Laux, P. A. (2007). Corporate Governance, Idiosyncratic risk, and Information flow. The Journal of Finance, 62(2): 951-989.
Forugi, D. & Farjami, M. (2013). The Effect of Stock Price Synchronicity and Stock Return Volatility on Stock Liquidity. Unpublished master thesis in finance, Isfahan, Isfahan University. (in Persian)
Gaemi, M. & Vatanparast, M. (2005). Investigating the Role of Accounting Information in reducing Information Asymmetry in Tehran Stock Exchange. The Iranian Accounting And Auditing Review, 12(41): 85-103. (in Persian)
Gul, F. A., Kim, J. B. & Qiu, A. A. (2010). Ownership Concentration, Foreign Shareholding, Audit Quality, and Stock Price Synchronicity: Evidence from China. Journal of Financial Economics, 95(3): 425-442.
Jing, Z. (2007). Earnings Quality, Analyst, Institutional Investor and Stock price Synchronicity. Doctoral dissertation, PhD Thesis, Hong Kong, Hong Kong Polytechnic University.
Johnston, J.A. (2009). Accruals quality and price synchronicity. Doctoral dissertation, United States, Louisiana Tech University.
Kim, O. & Verrecchia, R. E. )1994(. Market Liquidity and Volume around Earnings Announcements. Journal of Accounting & Economics, 17 (1/2): 41-67.
Kommunuri, J. (2013). Audit Firm Industry Specialization, Discretionary accruals and Stock Price Synchronicity. Doctoral dissertation, New Zealand, Auckland University of Technology.
Kothari, S. P., Leone, A. J. & Wasley, C. E. (2005). Performance Matched Discretionary Accrual Measures. Journal of accounting and economics, 39(1): 163-197.
Lambert, R., Leuz, C. & Verrecchia, R. E. (2007). Accounting Information, Disclosure, and the Cost of Capital. Journal of Accounting Research, 45(2): 385-420.
Nguyen Ngoc Thanh, V. (2013). Determinants of Stock Price Synchronicity evidence from HoChiMinh city stock exchange. Doctoral dissertation.Vietnam, International University HCMC).
Nonahal Nahr, A., Jabarzade, S. & Pourkarim, Y. (2005). The relationship between Auditor Quality and Accrual Reliability. The Iranian Accounting And Auditing Review, 17(61): 55-70. (in Persian)
Noravesh, I. & Heydari, M. (2005). Evaluation of Management Performance in publicly-held companies listed in Tehran Stock Exchange by CVA model and Investigating it’s relation with Stock Return. The Iranian Accounting And Auditing Review, 11(38): 121-147. (in Persian)
Piotroski, J. D. & Roulstone, D. T. (2004). The influence of Analysts, Institutional Investors, and Insiders on the incorporation of Market, Industry, and Firm-specific information into stock prices. The Accounting Review, 79(4): 1119-1151.
Roll, R. (1988). R2. Journal of Finance, 43(3): 541–566.
Scott, W. R. (2012). Financial accounting theory. Canada: Pearson Education.
Su, L., Zhao, X. & Zhou, G. (2015). Auditor Tenure and Stock Price Idiosyncratic Volatility: The Moderating Role of Industry Specialization. Auditing: A Journal of Practice & Theory, 35(2): 147-166.
Tian, E. (2014). Voluntary disclosures and the stock price synchronicity-evidence from New Zealand. Doctoral dissertation. New Zealand, Auckland University of Technology.