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Does Investor Selection of Auditors Enhance Auditor Independence?
Brian W. Mayhew University of Wisconsin, Madison - Department of Accounting and Information Systems Joel Pike University of Illinois at Urbana-Champaign - Department of Accountancy August 1, 2002 Abstract: This paper reports the results of experiments designed to examine whether investor selection of auditors enhances auditor independence. The experimental design enables us to explore the effect on independence of different institutional rules over who hires and fires the auditors and to directly measure independence violations. The results suggest that transferring the power to hire and fire the auditor from managers to investors significantly decreases the portion of independence violations. Additional analysis suggests that a reduction in independence violations increases the overall surplus generated in the markets examined.
Keywords: auditor independence, auditor objectivity, experimental economics JEL Classifications: M40, M49, D80, G38, K22 Working Paper SeriesDate posted: October 15, 2002 ; Last revised: January 03, 2005Suggested CitationContact Information
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