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Do Investment Funds Audited by the Big Four Firms Exhibit Different Performances? Evidence from Brazil

Author

Listed:
  • Rodrigo Fernandes Malaquias

    (Department of Finance, School of Business and Management (FAGEN), Federal University of Uberlândia (UFU), Uberlândia 38400-902, MG, Brazil)

  • Dermeval Martins Borges Junior

    (Department of Accounting, Faculty of Management, Accounting, and Economic Sciences (FACE), Federal University of Goiás (UFG), Goiânia 74690-900, GO, Brazil)

  • Pablo Zambra

    (Department of Economics and Business Sciences, Universidad de Sevilla, 41004 Sevilla, Spain
    Department of Audit & Assurance, Deloitte, Santiago 7561210, Chile)

Abstract

Investment funds manage a portfolio composed of financial instruments; therefore, their accounting reports should undergo a careful process of preparation and auditing. The main purpose of this study is to analyze the effect of being audited by a Big Four audit company on funds’ risk-adjusted performance. The database is composed of equity funds from the Brazilian financial market, with daily returns spanning from January 2005 to March 2023. The funds’ performance was measured based on three indicators, including the Sharpe Ratio and Jensen’s Alpha. Fama and MacBeth regressions were used to test the hypotheses. The main findings indicate that the benefits of audit quality also include a positive effect on the risk-adjusted performance of investment funds, as the coefficient of the variable “Big Four” was positive and significant based on the proxies for risk-adjusted performance. This study advances this area of research by demonstrating the effects of the type of audit on the risk-adjusted performance indicators of investment funds.

Suggested Citation

  • Rodrigo Fernandes Malaquias & Dermeval Martins Borges Junior & Pablo Zambra, 2024. "Do Investment Funds Audited by the Big Four Firms Exhibit Different Performances? Evidence from Brazil," JRFM, MDPI, vol. 17(7), pages 1-11, July.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:7:p:284-:d:1430304
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    References listed on IDEAS

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    3. Chen, Huimin (Amy) & Francis, Bill B. & Shen, Yinjie (Victor) & Wu, Qiang, 2024. "The impact of hedge fund activism on audit pricing," The British Accounting Review, Elsevier, vol. 56(2).
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