Client importance and earnings quality: an analysis of the moderating effect of managerial incentives for target beating versus auditors' incentives to avoid reputational losses and litigation

초록

I examine the effects of client importance on accounting quality. In particular, I analyse whether these effects are moderated by managerial incentives to engage in earnings management (like benchmark beating) or by auditors' incentives to maintain their reputation and avoid litigation. While the managerial incentives would lead to lower earnings quality, auditors' incentives would lead to higher earnings quality. My results are in line with client importance being associated with better quality accounting. In particular, I show that auditors' incentives are important and moderate the relation between client importance and accounting quality.

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