Do Nonaudit Services Enhance Value? Evidence from the Capital Markets

Nonaudit services performed by auditors for their audit clients have long been a focus of concern for regulators. The SEC has mandated disclosure of fees for both audit and nonaudit services in order to provide investors with a more transparent representation of the auditor-client relationship. The purpose of this study is to investigate whether nonaudit service fees influence the value relevance of accounting numbers. We find that nonaudit fees have a positive effect on the value relevance of accounting numbers. This result suggests that the provision of auditor’s nonaudit services increases the value relevance of accounting information. This result is contrary to the prevailing belief that nonaudit services impair auditor independence. We also find that investors’ perception of nonaudit fees has changed. In particular, investors perceive nonaudit service as more value enhancing even after the enactment of Sarbanes-Oxley.