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To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jbankfin.2010.02.020 Byline: Kiridaran Kanagaretnam (a), Chee Yeow Lim (b), Gerald J. Lobo (c) Keywords: Auditor reputation; Auditor expertise; Earnings management; Earnings benchmarks; Loan loss provisions Abstract: We examine the relation between auditor reputation and earnings management in banks using a sample of banks from 29 countries. In particular, we examine the implications of two aspects of auditor reputation, auditor type and auditor industry specialization, for earnings management in banks. We find that both auditor type and auditor industry specialization moderate benchmark-beating (loss-avoidance and just-meeting-or-beating prior year's earnings) behavior in banks. In addition, we find that once auditor type and auditor industry specialization are included in the same tests, only auditor industry specialization has a significant impact on constraining benchmark-beating behavior. In separate tests related to income-increasing abnormal loan loss provisions, we find that both auditor type and auditor expertise constrain income-increasing earnings management. Again, in joint tests, only auditor industry expertise has a significant impact on constraining income-increasing earnings management. Author Affiliation: (a) DeGroote School of Business, McMaster University, Hamilton, Ontario, Canada L8S 4M4 (b) School of Accountancy, Singapore Management University, Singapore 178900, Singapore (c) C.T. Bauer College of Business, University of Houston, Houston, TX 77204-6021, United States Article History: Received 18 September 2009; Accepted 19 February 2010

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jbankfin.2008.10.013 Byline: Kiridaran Kanagaretnam (a), Gopal V. Krishnan (b), Gerald J. Lobo (c) Keywords: Auditor reputation; Auditor expertise; Audit quality; Loan loss provision; Market valuation; Signaling Abstract: We examine how auditor reputation conditions the market valuation of banks' loan loss provision (LLP). The inherent uncertainty associated with and discretion permitted in estimating the LLP contributes to information asymmetry. The auditor's certification and monitoring roles influence firm value by mitigating this information asymmetry. We examine two aspects of auditor reputation, auditor type (Big 5 vs. non-Big 5) and auditor expertise, in the banking industry. We find a significant, positive association between the discretionary component of LLP and stock return for banks audited by the Big 5 auditors. Further analysis indicates that auditor expertise within banking and not auditor type drives this significant, positive association. Overall, our results are consistent with auditor expertise in the banking industry mitigating information asymmetry between bank managers and investors and enhancing the information conveyed by discretionary loan loss provision. Author Affiliation: (a) DeGroote School of Business, McMaster University, Hamilton, Ontario, Canada L8S 4M4 (b) College of Business and Economics, Lehigh University, Bethlehem, PA 18015, United States (c) C.T. Bauer College of Business, University of Houston, 334 Melcher Hall, Houston, TX 77204-6021, United States Article History: Received 5 February 2008; Accepted 30 October 2008 Article Note: (footnote) [star] This paper was originally submitted to Professor Giorgio Szego on August 30, 2007 and was revised once prior to submission through EES.