Abstract:

This paper examines the association between bid-ask spreads, a market based measure of information asymmetry, and the quality of the external audit in the Tunisian capital market. Our results show that the bid-ask spreads is negatively related to the employment of an industry specialist auditor and Big4 auditor; and positively related to audit firm tenure. However, further tests refine those conclusions, in that the positive association between tenure and bids-ask spread differs between specialist and non-specialist auditors and between Big4 and non-Big4 auditors. Specifically, we find that bid-ask spreads is increasing in tenure for clients of non-specialist and clients of non-Big4. These findings are consistent with a market that perceives audit quality diminishing with tenure for non-specialist auditors and non-Big4 auditors; and a market that finds audit quality increasing with industry specialization and Big4 auditors.