Investigating the Effect of Abnormal Audit Fees on the Relationship between Entropy of Financial Statements and Stock Returns

Document Type : Research Paper

Authors

1 Associate Professor of Accounting, Shahid Chamran University of Ahvaz, Ahvaz, Iran.

2 Assistant Professor of Accounting, Shahid Chamran University of Ahvaz, Ahvaz, Iran.

3 Associate Professor of Economics, Shahid Chamran University of Ahvaz, Ahvaz, Iran.

4 Ph.D.Candidate of Accounting, Shahid Chamran University of Ahvaz, Ahvaz, Iran.

10.22103/jak.2021.18179.3565

Abstract

Objective: Changes in the information contained in the financial statements of companies is one of the most important sources of information for decision making for users of financial statements. The greater the range of changes in the items in the financial statements, the higher the information risk or entropy of the financial statements. When the entropy of financial statements is high, users of financial statements become confused and financial analysts are not easily able to estimate the future of the companies; therefore, the entropy of financial statements is considered as a degree of uncertainty in order to predict the future status of the companies. Investing in the stocks of those companies that have high entropy has a high risk, and due to the high risk and the possibility of bankruptcy, it is possible that the principal and profit of capital are lost. For this reason, when investors intend to invest in such companies, are exposed to information risk, And this makes investors adjust their expected rate of return. Failure to meet the expectations of investors will cause them to flee the stock market; This has a significant effect on the cost of capital and the actual return on shares of companies, Therefore, the purpose of this study was to investigate the effect of entropy of financial statements on stock returns and the moderating role of abnormal audit fees on the relationship between entropy of financial statements and stock returns.
Method: The current research is applied in terms of purpose and regression correlation analysis in terms of method. The data required for this research have been collected from the website of Tehran Stock Exchange, databases and references to basic financial statements and the Notes to the financial statements of the surveyed companies. To achieve the purpose of the research, 94 companies listed on the Tehran Stock Exchange during the period 2013 to 2020 were examined. Combined data analysis and multivariate linear regression were used to test the research hypotheses. Also, we used Microsoft Excel version 16 and Eviews version 9 to analyze the data and extract research results.
Results: The research findings show that the entropy of financial statements (general entropy, Shannon continuous entropy and Renny continuous entropy) has a negative and significant relationship with stock returns. In other words, with increasing entropy of financial statements, stock returns decrease. Also, the research findings indicate that the abnormal audit fees moderate the relationship between entropy of financial statements and the indicators used for it (general entropy, Shannon continuous entropy and Renny continuous entropy) with stock returns. In other words, an abnormal audit fee reduces the severity of the relationship between the entropy of the financial statements and the indicators used for it (general entropy, Shannon continuous entropy and Renny continuous entropy) with stock returns.
Conclusion: Those business units that have a higher entropy risk, their balance sheet composition has more changes. The existence of high entropy in financial statements indicates the more information risk, due to the uncertainty and instability of financial statement items in business units. In other words, investors consider the amount of changes in different items of the balance sheet and income statement compared to the previous period in order to get a correct understanding of the management's performance and their success or failure in achieving the desired goals of the business unit.Also creditors when granting loans, by calculating the entropy of financial statements of business units, If the amount is high, they refuse to give a loan due to the high risk and the ambiguity of the return of the principal and the guaranteed interest of the credits, which causes restriction in the External financing by business units. in other words, entropy of financial statements increases the risk of information and consequently discourages investors and creditors in their decisions to invest or lend and leads to a decrease in stock returns. On the other hand, Audit quality is effective on stock returns through increasing the quality of financial statements and information transparency of business units. Also  abnormal audit fee as a measure of audit quality improve the quality and credibility of financial statements as one of the most important sources of information for users of financial statements and lead to reduces the intensity of the relationship between the entropy of financial statements and stock returns and this means that investors and creditors and other users of financial statements consider the auditor's fees to be caused by other factors (other than economic dependencies) and in their opinion, the company's information is a Good support for evaluating the stock price.

Keywords

References

بولو، قاسم و حسنی القار، مسعود (1393). ارتباط میان کیفیت سود، عدم تقارن اطلاعاتی و هزینه حقوق صاحبان سهام. مجله دانش حسابداری، 5(17)، 49-75.
تائبی نقندری، امیر حسین؛ صادقی، مسعود و تائبی نقندری، علی (1397). اثر آنتروپی صورت‌های مالی بر سرعت تعدیل ساختار سرمایه. مجله دانش حسابداری، 10(3)، 176-145.
تائبی نقندری، امیرحسین و صادقی، مسعود (1397). کمیته حسابرسی و آنتروپی صورت‌های مالی. پژوهش‌های کاربردی در گزارشگری مالی، 7(1)، 143-170.
حیدری، مهدی؛ قادری، بهمن و رسولی، پیمان (1395). بررسی تأثیر کیفیت حسابرسی بر هزینه‌های نمایندگی و عدم تقارن اطلاعاتی: رویکرد الگوسازی معاملات ساختاری. بررسی‌های حسابداری و حسابرسی، 23(3)، 333-372.
دستگیر، محسن و خدابنده، رامین (1382). ارتباط بین محتوای اطلاعاتی اجزای اصلی صورت جریان وجوه نقد با بازده سهام. مجله علوم اجتماعی و انسانی، 19(2)، 112-100.
دستگیر، محسن؛ گوگرد چیان، احمد و آدمیت، ستاره (1394). رابطه بین کیفیت سود (پراکندگی سود) و بازده سهام. پژوهش‌های حسابداری مالی وحسابرسی، 7(26)، 37-21.
رحیمیان، نظام الدین؛ خوزین، علی و محمدی، جمال (1398). تأثیر بازده سهام و نوسان شاخص بورس بر روی حجم معاملات اوراق اختیار فروش تبعی. دانش مالی تحلیل اوراق بهادار، 12(42)، 181-193.
رضایی، فرزین؛ ویسی حصار، ثریا و قندچی، فرشین (1398). رابطه بین حق‌الزحمه حسابرسی با فرصت‌های رشد و بازده غیرعادی شرکت‌ها. دانش حسابرسی، 19(76)، 87-126.
زینلی، حدیث و زندوکیلی، نجمه (1396). تأثیر آنتروپی شانون و رنی پیوسته بر مدل های مالی سرمایه گذاری. دومین کنفرانس سالانه اقتصاد، مدیریت و حسابداری.
سرخانی مقدم، داریوش؛ پاکدل، عبدالله (1397). بررسی رابطه بین حق‌الزحمه غیرعادی حسابرسی و تجدید ارائه صورت‌های مالی در شرکت‌های پذیرفته شده در بورس اوراق بهادارتهران. تحقیقات حسابداری و حسابرسی، 10(37)، 133-146.
عبدالله‌زاده، سلام؛ فرقاندوست حقیقی، کامبیز و آراد، حامد (1392). بررسی آنتروپی صورت‌های مالی و اثر آن بر تغییرات سود در صنایع بورس اوراق بهادار تهران. دانش حسابرسی، 13(52)، 1-34.
غلامی گیفان، سعیده؛ بذرافشان، آمنه و صالحی، مهدی (1398). بررسی رابطه انحصار بازار حسابرسی با حق‌الزحمه و کیفیت حسابرسی با در نظر گرفتن ماده 99 قانون پنجم توسعه. پژوهش‌های تجربی حسابداری، 31(8)، 365-387.
فخاری، حسین؛ قربانی، هادی و رجب بیگی، محمدعلی (1397). پایداری و جهش در حق‌الزحمه غیرعادی حسابرسی وکیفیت گزارشگری مالی. پیشرفت‌های حسابداری، 10(2)، 221-250.
قهرمانی زهرایی، محمدآرین؛ بولو، قاسم و مرفوع، محمد (1399). تأثیر کیفیت اطلاعات حسابداری بر هزینه حقوق صاحبان سهام شرکت‌ها با توجه به نقش عدم تقارن اطلاعاتی و قابلیت مقایسه صورت‌های مالی. مطالعات تجربی حسابداری مالی، 17(68)، 33-65.
منصوری سرنجیانه، میکائیل و تنانی، محسن (1392). بررسی عکس‌العمل بازار سهام نسبت به حق‌الزحمه‌های غیرعادی حسابرسی. پژوهش‌های حسابداری مالی، 5(4)، 105-120.
مؤمنی، علیرضا؛ گرد، عزیز و روانخواه، طاهره (1399). حق‌الزحمه‌های غیرعادی حسابرسی و کیفیت حسابداری. تحقیقات حسابداری و حسابرسی، 12(47)،100-87.
نمازی، محمد و ابراهیمی، شهلا (1391). بررسی ارتباط بین ساختار رقابتی محصول و بازده سهام. مجله پژوهش‌های تجربی حسابداری مالی، 2(3)، 9-27.
References
AbdullahZadeh, S., Forghandost haghighi, K., & Arad, H. (2013). Investigating the entropy of financial statements and its effect on earnings changes in Tehran Stock Exchange industries. Auditing Knowledge, 13(52), 1-34 [In Persian].
Alexeyeva, I., & Svanström, T. (2015). The impact of global financial crisis on audit and nonaudit fees. Managerial Auditing Journal, 30(4), 302-323.
Arkan, T. (2016). The importance of financial ratios in predicting stock price trends: A case study in emerging markets. Finanse, Rynki Finansowe, Ubezpieczenia, 79(1), 13-26.
Assad, N.F., & Alshurideh, M.T. (2020). Financial reporting quality, audit quality, and investment efficiency: Evidence from GCC economies. Waffen-und Kostumkunde, 11(3), 194-208.
Asthana, S.C., & Boone, J.P. (2012). Abnormal audit fee and audit quality. A Journal of Practice & Theory, 31(3), 1–22.
Blue, G., & Hasani Alghar, M. (2014). Relations among earnings quality, information asymmetry and cost of equity. Journal of Accounting Knowledge, 5(17), 49-75 [In Persian].
Blue, G., Marfou, M., & Ghahremani, A. (2020). The effect of accounting information quality on the companies`s cost of equity, considering the role of information symmetry and comparability of financial statements. Empirical Studies in Financial Accounting, 17(68), 33-65 [In Persian].
Chae, C.J., Nakano, M., & Fujitani, R. (2020). Financial reporting opacity, audit quality and crash risk: Evidence from Japan. Journal of Asian Finance, Economics and Business, 83(5), 9-17.
Chan, S., Gul, F.A., & Zhou, J. (2008). Earnings information, financial intermediaries and stock price synchronicity. The Hong Kong Polytechnic University Working Paper.
Choi, J., Kim, J., & Zang, Y. (2010). Do abnormally high audit fees impair audit quality? A Journal of Practice & Theory, 29(2), 115–140.
Daniel, T.P., Emese, L., & Alfonso, D. (2017). Information Entropy and Measures of market risk. Entropy, 19(5).
Dastgheir, M., & Khodabandeh, R. (2003). The relationship between the information content the main components of a cash flow statement with stock returns. Journal of Social Sciences and Humanities, Shiraz University, 19(2), 100-112 [In Persian].
Dastgheir, M., SulfurChian, A., & Humanity, S. (2015). The relationship between earnings quality (earnings distribution) and stock returns. Financial Accounting and Auditing Research, 7(26), 21-37 [In Persian].
DeAngelo, L.E. (1981). A auditer independing, low balling and disclosure regulation. Journal of Accounting and Economics, 3(2), 113-127.
Dechao, Y. (2019). Investment decision based on entropy theory. Scientific Research an Academic Publisher.
Dionisio, A., Menezes, R., & Mendes, AD. (2005). Uncertainty analysis in financial markets: Can entropy be a solution. The European Physical Journal, 50, 161-164.
Fakhari, H., Ghorbani, H., & Rajab Beyki, M. (2019). Jump and consistency of the abnormal audit fee and financial reporting quality. Journal of Accounting Advances, 10(2), 221-250 [In Persian].
Gholami Gifan, S., Bazrafshan, A., & Salehi, M. (2019). Relation of audit market concentration to audit fees and audit quality according to article 99 of Fifth development plan law. Empirical Research in Accounting, 9(1), 366-396 [In Persian].
Heidari, M., Qaderi, B., & Rasouli, P. (2016). The effect of audit quality on agency costs and information asymmetry: Structural equation modeling approach. Accounting and Auditing Review, 23(3), 353-372 [In Persian].
Hribar, P., Kravet, T., & Wilson, R. (2014). A new measure of accounting quality. Review of Accounting Studies, 19, 506–538.
Jin, L., & Mayers, S. (2006). R2 around the world: New theory and new tests. Journal of Financial Economics, 79, 257-292.
Lin, F. C., Lin, Y. C., & Chen, C. S. (2018). Accrual reversals and audit fees: the role of abnormal audit fees. Asia-Pacific Journal of Accounting & Economics, 25(1-2), 276-294.
Maasoumi, E., & Racine, J. (2002). Entropy and predictability of stock market returns. Journal of Economictrics, 107(1-2), 291-312.
Mansouri Sernjianeh, M., & Tanani, M. (2013). Stock market reaction to abnormal audit fees. Journal of Financial Accounting Research, 5(4), 105-120 [In Persian].
Momeni, A., Gord, A., & Ravankhah, T. (2020). Abnormal audit fees and accounting quality. Accounting and Auditing Research, 12(47), 87-100 [In Persian].
Namazi, M., & Ebrahimi, Sh. (2012). Investigating the relationship between product market’s competitive structure and stock return of the listed companies on the Tehran Stock Exchange. Journal of Financial Accounting Knowledge, 2(3), 9-27 [In Persian].
Ormos, M., & Zibriczky, D. (2014). Entropybased financial asset pricing. PloS One, 9(12), e115742.
Rahimian, N., Khozein, A., & Mohamadi, J. (2019). The effect of stock returns and volatility of stock index on put option transactions volume. Financial Knowledge of Securities Analysis, 12(42), 181-193 [In Persian].
Rezaei, F., Veisi Hesar, S., & Ghandchi, F. (2019). The relationship between audit fees and corporate growth opportunities and abnormal returns. Auditing knowledge, 19(76), 87-126 [In Persian].
Sarkhani Moghadam, D., & Pakdel, A. (2018). The relationship between of abnormal audit fees and restatements of listed companies in Tehran Stock Exchange. Accounting and Auditing Research, 10(37), 133-146 [In Persian].
Simunic, D. (1980). The pricing of audit services: Theory and evidence. Journal of Accounting Research, 18(1), 161-190.
Taebi Noghandari, A., & Sadeghi, M. (2018). Audit committee and entropy of financial statements. Applied Research in Financial Reporting, 7(1), 143-170 [In Persian].
Taebi Noghondari, A., Sadeghi, M., & Taebi Noghondari, A. (2018). Effects of entropy of financial statements on the adjustment speed of capital structure. Journal of Accounting Knowledge, 9(3), 145-176 [In Persian].
Thomas, J.A., & Cover, T.M. (2006). Elements of Information Theory. 2nd edition, A John Wiley & Sons.
Wanchen, Z. (2021). Research on the relationship between abnormal audit fees of listed companies and the risk of stock price crash. International Conference on New Energy Technology and Industrial Development, 235.
Yin, H. (2015). Financial statement conformance to Benford's law and audit fees. Master’s Thesis, Macquarie University, Australia, Sydney.
Zeynali, H., & Zandvakili, N. (2017). The effect of continuous Shannon and Rennie entropy on investment financial models. The second annual conference of economics, management and accounting [In Persian].
Journal of Accounting Knowledge
Volume 13, Issue 3 - Serial Number 50
October 2022
Pages 137-160

Files

History

  • Receive Date: 04 September 2021
  • Revise Date: 30 October 2021
  • Accept Date: 27 November 2021

Share

How to cite

Statistics