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http://hdl.handle.net/10397/94391
Title: | The impact of revealing auditor partner quality : evidence from a long panel | Authors: | Cheng, CSA Wang, K Xu, Y Zhang, N |
Issue Date: | Dec-2020 | Source: | Review of accounting studies, Dec. 2020, v. 25, no. 4, p. 1475-1506 | Abstract: | We examine whether the revelation of individual audit partner reputation affects client firms’ external financing choice. Specifically, we investigate whether a firm switches its financing choices once its auditor partner is perceived to be a low-quality partner, captured by whether one of the audit partner’s other clients is sanctioned for financial misreporting. We identify firms audited by a low-quality partner as the treatment firms and designate firms audited by other audit partners from the same audit office as the control firms. Using a long panel of data with audit partner identity, we find that, on average, the treatment firm switches from equity financing to credit financing after the discovery of individual audit partner quality. In addition, reduced equity financing is primarily concentrated among firms that choose to keep low-quality partners. By building an implicit link between the non-sanctioned firm and the sanctioned firm through a common audit partner, we show that investors can infer the quality of external audits using the auditor-level information, thus empirically supporting to the new PCAOB rule that requires disclosure of the partner-level information. | Keywords: | Audit Equity investors External financing Individual audit partner |
Publisher: | Springer | Journal: | Review of accounting studies | ISSN: | 1380-6653 | DOI: | 10.1007/s11142-020-09537-w | Rights: | © Springer Science+Business Media, LLC, part of Springer Nature 2020 This version of the article has been accepted for publication, after peer review (when applicable) and is subject to Springer Nature’s AM terms of use (https://www.springernature.com/gp/open-research/policies/accepted-manuscript-terms), but is not the Version of Record and does not reflect post-acceptance improvements, or any corrections. The Version of Record is available online at: http://dx.doi.org/10.1007/s11142-020-09537-w. |
Appears in Collections: | Journal/Magazine Article |
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