| Summary: | 碩士 === 中原大學 === 會計研究所 === 104 === The agency cost increases while the separation of management and ownership becomes major business operating concept. Managers indulge in more earnings management when the goals of firms’ managers and investors are different. It will induce the asymmetric information problem between investors and managers, nevertheless, this kind problem can be mitigated by the audit of outside auditors. There are many researches exploring the association of earnings management and the quality of financial report. However, few literatures examine the association between earnings management and stock return volatility, neither few study investigate the impact of CPA’s industry expertise on stock return volatility, and lack of research surveys further the effect of the CPA’s industry expertise on the sensitivity of stock return volatility over companies’ earnings management. As a result, we investigate how manger’s earnings management activity and auditor’s industry expertise affect corporate’s stock return volatility. In addition, we also observe how auditor’s industry expertise influences the sensitivity of stock return volatility over earnings management.
In the study, we explore all listed companies in Taiwan from 2004 to 2013 to investigate the impact of company’s earnings management activity on stock return volatility, and study the association between auditor’s industry expertise and stock return volatility, as well as the effect of CPA’s industry expertise on the sensitivity of stock return volatility over managers’ earnings management. Empirical results indicate that managers’ earnings management activities increase volatility of company’s stock return while auditor’s industry expertise is measured by the market share of auditee’s sales revenue. We also find that no matter auditor’s industry expertise is measured by the market share of auditee’s sales revenue or the ranking of market share of auditee’s sales revenue, when corporate employs an auditor with industry expertise, the volatility of stock returns will be mitigated. Furthermore, the results show that when the auditor’s industry expertise is measured by the ranking of market share of auditee’s sales revenue, CPA’s industry expertise can reduce the effect of earnings management activity on stock return volatility. Therefore, to sum up, auditors with industry expertise can increase the value relevance of financial reports and decrease investors’ uncertainty about the future.
In this study, we explore all listed companies in Taiwan from 2004 to 2013 to investigate the relation of company’s earnings management activity to stock return volatility, and survey the association between auditor’s industry expertise and stock return volatility, as well as the effect of CPA’s industry expertise to the sensitivity of earnings management and stock return volatility. Empirical results indicate that manager earnings management activity increased volatility of company’s stock return when auditor’s industry expertise is measured by the market share of sales revenue. We also find that no matter auditor’s industry expertise is measured by the market share of sales revenue or the ranking of market share of sales revenue, when corporate employ the auditor which have industry knowledge, the volatility of stock return will cut down. Furthermore, the result show that when the auditor’s industry expertise is measured by the ranking of market share of sales revenue, CPA’s industry expertise can reduce the effect of earnings management activity to stock return volatility. Therefore, generalize the result of this research, auditors have the specialize knowledge of the audit firms will increase the value relevance of financial report and decrease the uncertainty of investor to the future of the company.
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