Are Non-Audit Services Associated with Firm Value? Evidence from Financial Information System-Related Services

Abstract

The purchase of nonaudit services from incumbent auditors has generated considerable attention. Surprisingly, limited empirical evidence exists on the association of nonaudit services with firm value. Focusing on financial information system (FIS) related services, we find that the market value of equity is greater for firms that purchase FIS-related services from their incumbent auditors relative to firms that do not. The levels of FIS fees are also positively related to firm value after controlling for total other fees, or total other nonaudit fees. Hence, despite the negative perception associated with nonaudit services, investors regard FIS-related services as value-adding activities.

Keywords: Nonaudit services, Economic bond, Financial information system, Capital markets, Big 5 auditors.

JEL Classification: M49, G12