Investors' perceptions of earnings quality, auditor independence, and the usefulness of audited financial information.

Accounting Horizons, January, 2003 by Frank D. Hodge

SYNOPSIS: In this paper I investigate whether nonprofessional investors' beliefs mirror the Securities and Exchange Commission's (SEC) concerns that earnings quality and auditor independence have declined over time. I also examine whether lower perceptions of earnings quality are associated with more or less reliance on a firm's audited financial statements and fundamental analysis of those statements when making investment decisions. My results suggest that the SEC's concerns are valid: Perceived earnings quality for all publicly traded firms has declined overtime, as has perceived auditor independence and the perceived reliability of audited financial information. In contrast, the perceived relevance of audited financial information has increased. In addition, results reveal...