Whether Auditor Specialization Matters to Investor? Empirical Evidence from High Profile Industry in Indonesia

Sri, Wahyuni (2013) Whether Auditor Specialization Matters to Investor? Empirical Evidence from High Profile Industry in Indonesia. ARTIKEL PROSIDING.

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Abstract

This study aims to investigate whether auditor specialization matters to investor. Particularly, this study aims to examine the relation between auditor specialization and cost of debt financing. A number of prior studies have examined the effect of characteristic audit quality to cost of debt financing using auditor size as a proxy for quality (i.e. Blacwell et al., 1998; Pittman dan Fortin, 2004; Mansi et al., 2004). Otherwise, Simunic, (2003) stated that measured audit quality using auditor size must be reviewed. In general, financial reporting credibility reflects a user (investor) – rather than a preparer – views of financial statements and focuses on investor rational perceptions. Hence, we extend this literature by moving beyond the traditional definition of a high quality auditor, and investigating whether auditor specialization and business risk can reduce expectation cost of debt financing of investor from Indonesia bond market, expecially in high profile industry. Data used in this study are 789 firms of observation years during 2000-2010. From this amount, 291 samples are high profile industry. Hypothesis testing in this research employs regression. Consistent with expectation, the results of this study find that (1) auditor specialization are factored into firm’s bond rating by credit rating agencies. (2) auditor specialization is negatively and significantly related to the cost of debt financing (3) the relation between auditor specialization and the cost of debt financing is most pronounced in high profile industry. Overall, our result suggets that auditor specialization matters to bond market investor in Indonesia.

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