Big 4 conservatism around the world

Richard CHUNG, Michael Arthur FIRTH, Jeong Bon KIM, Lei PANG

Research output: Book Chapters | Papers in Conference ProceedingsBook ChapterResearchpeer-review

Abstract

Conservatism is a long-established underlying principle of accounting but its implementation has come under the spotlight in recent years following the spate of well-publicized corporate collapses in the U.S. and elsewhere. Previous studies have shown that the Big 4 audit firms are more conservative than the non-Big 4 in the U.S. The current study examines whether the U.S. findings extend to other countries. In doing so, we make use of a relatively new measure of conservatism, namely, the C-score developed by Khan and Watts. We find that the conclusion drawn from U.S. studies, namely that the Big 4 are more conservative, extends to the international setting but only under certain conditions. Specifically, the Big 4 are more conservative in those countries where litigation and reputation risks, broadly defined, are high. This increase in conservatism represents a rational response by the Big 4 auditors to their greater exposure, vis-a-vis the non-Big 4 auditors, to litigation and reputation loss in those countries.
Original languageEnglish
Title of host publicationCorporate Governance in Emerging Markets, CSR, Sustainability, Ethics and Governance
PublisherSpringer Berlin Heidelberg
Pages197-238
Number of pages42
ISBN (Print)9783642449543
DOIs
Publication statusPublished - 1 Jan 2014

Fingerprint

Conservatism
Big 4
Litigation
Auditors
Audit firms

Cite this

CHUNG, R., FIRTH, M. A., KIM, J. B., & PANG, L. (2014). Big 4 conservatism around the world. In Corporate Governance in Emerging Markets, CSR, Sustainability, Ethics and Governance (pp. 197-238). Springer Berlin Heidelberg. https://doi.org/10.1007/978-3-642-44955-0_8
CHUNG, Richard ; FIRTH, Michael Arthur ; KIM, Jeong Bon ; PANG, Lei. / Big 4 conservatism around the world. Corporate Governance in Emerging Markets, CSR, Sustainability, Ethics and Governance. Springer Berlin Heidelberg, 2014. pp. 197-238
@inbook{ea8a332259674f84a4fd12378d63eb74,
title = "Big 4 conservatism around the world",
abstract = "Conservatism is a long-established underlying principle of accounting but its implementation has come under the spotlight in recent years following the spate of well-publicized corporate collapses in the U.S. and elsewhere. Previous studies have shown that the Big 4 audit firms are more conservative than the non-Big 4 in the U.S. The current study examines whether the U.S. findings extend to other countries. In doing so, we make use of a relatively new measure of conservatism, namely, the C-score developed by Khan and Watts. We find that the conclusion drawn from U.S. studies, namely that the Big 4 are more conservative, extends to the international setting but only under certain conditions. Specifically, the Big 4 are more conservative in those countries where litigation and reputation risks, broadly defined, are high. This increase in conservatism represents a rational response by the Big 4 auditors to their greater exposure, vis-a-vis the non-Big 4 auditors, to litigation and reputation loss in those countries.",
author = "Richard CHUNG and FIRTH, {Michael Arthur} and KIM, {Jeong Bon} and Lei PANG",
year = "2014",
month = "1",
day = "1",
doi = "10.1007/978-3-642-44955-0_8",
language = "English",
isbn = "9783642449543",
pages = "197--238",
booktitle = "Corporate Governance in Emerging Markets, CSR, Sustainability, Ethics and Governance",
publisher = "Springer Berlin Heidelberg",

}

CHUNG, R, FIRTH, MA, KIM, JB & PANG, L 2014, Big 4 conservatism around the world. in Corporate Governance in Emerging Markets, CSR, Sustainability, Ethics and Governance. Springer Berlin Heidelberg, pp. 197-238. https://doi.org/10.1007/978-3-642-44955-0_8

Big 4 conservatism around the world. / CHUNG, Richard; FIRTH, Michael Arthur; KIM, Jeong Bon; PANG, Lei.

Corporate Governance in Emerging Markets, CSR, Sustainability, Ethics and Governance. Springer Berlin Heidelberg, 2014. p. 197-238.

Research output: Book Chapters | Papers in Conference ProceedingsBook ChapterResearchpeer-review

TY - CHAP

T1 - Big 4 conservatism around the world

AU - CHUNG, Richard

AU - FIRTH, Michael Arthur

AU - KIM, Jeong Bon

AU - PANG, Lei

PY - 2014/1/1

Y1 - 2014/1/1

N2 - Conservatism is a long-established underlying principle of accounting but its implementation has come under the spotlight in recent years following the spate of well-publicized corporate collapses in the U.S. and elsewhere. Previous studies have shown that the Big 4 audit firms are more conservative than the non-Big 4 in the U.S. The current study examines whether the U.S. findings extend to other countries. In doing so, we make use of a relatively new measure of conservatism, namely, the C-score developed by Khan and Watts. We find that the conclusion drawn from U.S. studies, namely that the Big 4 are more conservative, extends to the international setting but only under certain conditions. Specifically, the Big 4 are more conservative in those countries where litigation and reputation risks, broadly defined, are high. This increase in conservatism represents a rational response by the Big 4 auditors to their greater exposure, vis-a-vis the non-Big 4 auditors, to litigation and reputation loss in those countries.

AB - Conservatism is a long-established underlying principle of accounting but its implementation has come under the spotlight in recent years following the spate of well-publicized corporate collapses in the U.S. and elsewhere. Previous studies have shown that the Big 4 audit firms are more conservative than the non-Big 4 in the U.S. The current study examines whether the U.S. findings extend to other countries. In doing so, we make use of a relatively new measure of conservatism, namely, the C-score developed by Khan and Watts. We find that the conclusion drawn from U.S. studies, namely that the Big 4 are more conservative, extends to the international setting but only under certain conditions. Specifically, the Big 4 are more conservative in those countries where litigation and reputation risks, broadly defined, are high. This increase in conservatism represents a rational response by the Big 4 auditors to their greater exposure, vis-a-vis the non-Big 4 auditors, to litigation and reputation loss in those countries.

UR - http://commons.ln.edu.hk/sw_master/3592

U2 - 10.1007/978-3-642-44955-0_8

DO - 10.1007/978-3-642-44955-0_8

M3 - Book Chapter

SN - 9783642449543

SP - 197

EP - 238

BT - Corporate Governance in Emerging Markets, CSR, Sustainability, Ethics and Governance

PB - Springer Berlin Heidelberg

ER -

CHUNG R, FIRTH MA, KIM JB, PANG L. Big 4 conservatism around the world. In Corporate Governance in Emerging Markets, CSR, Sustainability, Ethics and Governance. Springer Berlin Heidelberg. 2014. p. 197-238 https://doi.org/10.1007/978-3-642-44955-0_8