Abstract:
Econometric analysis – using panel data methods – of data on securities traded on the Dhaka Stock Exchange, Bangladesh, over the period 1995-99 indicates that audit quality may not necessarily increase with auditor size. However, choice of a large auditor does seem to alleviate any negative impact of nonaudit services on the confidence of investors. A lesson from this seems to be that companies requiring a relatively large amount of nonaudit services from their auditor should find it worthwhile to hire a big audit firm albeit with a fee premium. Another interesting result is that companies declaring negative earnings do not appear to suffer any detriment to their share returns as the link between earnings and returns is significantly weakened when announced earnings are negative.