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The Impact of Industry Specialist on the Relationship between Returns and Future Earnings

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  • Han-Ching Huang
  • Yung-An Huang

Abstract

Financial statements reveal the company's profitability and be used as an important indicator of the risk assessment. Auditor industry specialists can provide better quality of financial reports and informative disclosures. According to Lundholm and Myers (2002), we examine whether the fact that accountants or audit firm are industry specialists will affect the relationship between returns and future earnings. Since there exists the special system of dual attestation in Taiwan, we divide the accountants into lead auditors or concurring auditors to examine the above relationship. Empirical results indicate that the higher future earnings response coefficients are associated with the companies audited by industry specialist, the higher number of industry specialists, the more industry experience of industry specialists and the greater market value of company. These findings imply that more information about future earnings are revealed. Therefore, it improves the disclosure of company's future earnings when the accountants or audit firms are industry specialists. In addition, we do not find the evidence that the future earnings response coefficients in companies audited by the lead auditor as industry specialist are higher than those in companies audited by the concurring auditor as industry specialist and in specialist accounting firms. Â JEL classification numbers: G34, M41, M42.

Suggested Citation

  • Han-Ching Huang & Yung-An Huang, 2023. "The Impact of Industry Specialist on the Relationship between Returns and Future Earnings," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 13(2), pages 1-6.
    • Handle: RePEc:spt:apfiba:v:13:y:2023:i:2:f:13_2_6
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    References listed on IDEAS

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    More about this item

    Keywords

    Industry specialist; Dual-signature; Future earnings response coefficient (FERC).;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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