Strategic Deviance Impact on Auditor Quality and Its Consequences in Companies Listed on the Tehran Stock Exchange

Document Type : Research Paper


1 Assistant Prof., Department of Accounting, Faculty of Management and Accounting, Allameh Tabataba'i University, Tehran, Iran.

2 MSc., Department of Accounting, Faculty of Management and Accounting, Allameh Tabataba’i University, Tehran, Iran.



Objective: In the competitive business landscape, companies seek a distinctive competitive edge by diverging from conventional industry strategies and embracing alternative methods that prove more advantageous. This departure from traditional approaches is termed strategic deviation in accounting literature. According to this, our study aimed to investigate the relationship between strategic deviation and audit quality. In addition, the consequences of choosing high-quality auditors in firms with strategic deviation were investigated, too. In this research, the consequences of choosing high-quality auditors include investigating its effect on earning management, accumulation of capital in the hands of the institutional investors, cost of capital, and market value of listed firms.
Methods: The research methodology is characterized as descriptive and correlational, with a practical orientation in terms of its purpose. To test the hypotheses, the regression model was used. Based on this, the financial statements of listed firms for a 9-year period from 2012 to 2019 were examined. In this research, the statistical sample was selected by the systematic elimination method. According to this, 134 firms were selected based on the consolidated/combined data of the test and statistical analysis. For this purpose, five regression models were defined.
Results: Firms with high levels of strategic deviance were chosen quality auditors due to controlling the high level of agency conflict. This showed that firms with high levels of strategic deviation have most likely selected quality auditors. Therefore, based on agency theory, it seems that the high level of information asymmetry in firms with high levels of strategic deviation led firms to choose and employ quality auditors. In addition, in firms with strategic deviation, the selection of quality auditors has led to the reduction of the capital cost and the market value. Employing and selecting quality auditors was not found to be effective in limiting capital accumulation in the hands of major shareholders and earning management, especially in firms with high levels of strategic deviation, but audit quality was proved to be effective in explaining the status of firms’ earning management.
Conclusion: Firms with high levels of strategic deviation chose quality auditors due to the high level of agency conflict and reducing the firms’ capital costs. In addition, the selection of quality auditors led to a decrease in the market value of the firms. In other words, shareholders are also aware of the effect of strategic deviation of firms in competitive conditions and the possibility of more restrictions in such firms by highly qualified auditors. Also, in firms with strategic deviation, the selection of quality auditors led to limiting the amount of earning management, and the selection of quality auditors led to the reduction of the company's capital cost. In other words, auditor quality, along with strategic deviation, has been an effective factor in reducing a firm’s capital costs.


Main Subjects

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