Advanced search
1 file | 1.24 MB

The determinants and consequences of auditor choice in Indonesia

Heny Kurniawati (UGent)
(2018)
Author
Promoter
(UGent) and (UGent)
Organization
Abstract
One important prerequisite for sustainable economic growth – which is an important goal for many emerging countries – is access to finance (Ayyagari, Demirguec-Kunt, & Maksimovic, 2008; Demirguc-Kunt & Maksimovic, 1998). Unfortunately, access to financing for companies in emerging countries is often hindered by severe information asymmetry (Atkins & Glen, 1992). Auditing is one of the monitoring mechanisms used by firms to reduce agency problems between managers and company‟s stakeholders (Jensen & Meckling, 1976; Watts & Zimmerman, 1983). By verifying the validity of financial statements and providing assurance that financial statements faithfully reflect a company‟s underlying economics, auditors play a role as financial intermediaries enhancing the credibility of financial information (Becker, DeFond, Jiambalvo, & Subramanyam, 1998; DeFond & Zhang, 2014) and reducing information asymmetry. All the three studies in this dissertation use Indonesia as a research setting. Indonesia is one of the emerging countries where the litigation risk is considered to be low. The international audit firms can only enter to the Indonesian market by affiliation with local audit firms. The first study examines whether the affiliation of local audit firms with a Big4 audit firms can reduces the cost of debt for listed companies in Indonesia. This study demonstrates that companies audited by local audit firms affiliated with a Big4 audit firm enjoy significantly lower interest rates even in a less-litigious environment like Indonesia. This finding is consistent with the idea that creditors perceive the choice of a reputable high quality auditor as a signal of credible financial information. The second study investigates whether the potential impact of foreign investors and board members might have on auditor choice depends on whether they originate from a developed versus from another emerging country. This study highlights that in an emerging country like Indonesia especially ownership and board membership from developed foreign countries is positively associated with the selection of Big4 audit firms. This finding supports the view that cultural differences drive different tendencies of auditor choice. Foreign investors and board members from developed countries probably attach more importance on the assurance from high quality Big4 audit firms, as compared to foreign investors from emerging countries. The third study examines whether in Indonesia, a company‟s choice of a local audit firm affiliated with a Big4 audit firm affects its capital structure. The study documents that companies audited by local audit firms affiliated with a Big4 audit firm display lower debt ratios than those audited by other audit firms. This finding consistents with the idea that local audit firms affiliated with a Big4 audit firm are perceived to have higher quality, thus potentially reduced information asymmetry that affects the capital structure of the companies.
Keywords
auditor

Downloads

  • (...).pdf
    • full text
    • |
    • UGent only
    • |
    • PDF
    • |
    • 1.24 MB

Citation

Please use this url to cite or link to this publication:

Chicago
Kurniawati, Heny. 2018. “The Determinants and Consequences of Auditor Choice in Indonesia”. Gent.
APA
Kurniawati, H. (2018). The determinants and consequences of auditor choice in Indonesia. Gent.
Vancouver
1.
Kurniawati H. The determinants and consequences of auditor choice in Indonesia. [Gent]; 2018.
MLA
Kurniawati, Heny. “The Determinants and Consequences of Auditor Choice in Indonesia.” 2018 : n. pag. Print.
@phdthesis{8571492,
  abstract     = {One important prerequisite for sustainable economic growth -- which is an important goal for many emerging countries -- is access to finance (Ayyagari, Demirguec-Kunt, \& Maksimovic, 2008; Demirguc-Kunt \& Maksimovic, 1998). Unfortunately, access to financing for companies in emerging countries is often hindered by severe information asymmetry (Atkins \& Glen, 1992). Auditing is one of the monitoring mechanisms used by firms to reduce agency problems between managers and company\unmatched{201f}s stakeholders (Jensen \& Meckling, 1976; Watts \& Zimmerman, 1983). By verifying the validity of financial statements and providing assurance that financial statements faithfully reflect a company\unmatched{201f}s underlying economics, auditors play a role as financial intermediaries enhancing the credibility of financial information (Becker, DeFond, Jiambalvo, \& Subramanyam, 1998; DeFond \& Zhang, 2014) and reducing information asymmetry.
All the three studies in this dissertation use Indonesia as a research setting. Indonesia is one of the emerging countries where the litigation risk is considered to be low. The international audit firms can only enter to the Indonesian market by affiliation with local audit firms.
The first study examines whether the affiliation of local audit firms with a Big4 audit firms can reduces the cost of debt for listed companies in Indonesia. This study demonstrates that companies audited by local audit firms affiliated with a Big4 audit firm enjoy significantly lower interest rates even in a less-litigious environment like Indonesia. This finding is consistent with the idea that creditors perceive the choice of a reputable high quality auditor as a signal of credible financial information.
The second study investigates whether the potential impact of foreign investors and board members might have on auditor choice depends on whether they originate from a developed versus from another emerging country. This study highlights that in an emerging country like Indonesia especially ownership and board membership from developed foreign countries is positively associated with the selection of Big4 audit firms. This finding supports the view that cultural differences drive different tendencies of auditor choice. Foreign investors and board members from developed countries probably attach more importance on the assurance from high quality Big4 audit firms, as compared to foreign investors from emerging countries.
The third study examines whether in Indonesia, a company\unmatched{201f}s choice of a local audit firm affiliated with a Big4 audit firm affects its capital structure. The study documents that companies audited by local audit firms affiliated with a Big4 audit firm display lower debt ratios than those audited by other audit firms. This finding consistents with the idea that local audit firms affiliated with a Big4 audit firm are perceived to have higher quality, thus potentially reduced information asymmetry that affects the capital structure of the companies.},
  author       = {Kurniawati, Heny},
  language     = {eng},
  pages        = {147},
  school       = {Ghent University},
  title        = {The determinants and consequences of auditor choice in Indonesia},
  year         = {2018},
}