An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Ali R. Almutairi
Kuwait University

Kimberly Dunn
Florida Atlantic University

Terrance Skantz
Florida Atlantic University

Abstract: This paper examines the association between market-based measures of information asymmetry (i.e., bid-ask spread and trading volume) and auditor industry specialization and auditor tenure. The motivating question is whether and how auditor tenure and industry specialization are associated with the market’s perception of audit quality. Our results show that information asymmetry is negatively related to the employment of an industry specialist auditor and positively related to audit firm tenure. We do not find that the association between tenure and information asymmetry is significantly different for clients of specialist versus clients of non-specialist auditors. The findings are consistent with a market that perceives audit quality is higher when companies are audited by industry specialist auditors and lower when the client has retained the auditor for a longer period of time.

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