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https://ssrn.com/abstract=1532207
 
 

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Reputation of Low-Quality Big 4 and Non-Big 4 Auditors: Evidence from Auditor Switches of Former ChuoAoyama Clients


Hikaru Murase


University of Tokyo - Department of Technology Management for Innovation

Shingo Numata


Deloitte Touche Tohmatsu

Fumiko Takeda


University of Tokyo - Department of Technology Management for Innovation

August 31, 2011

Journal of Governance and Regulation 2(1): 7-23

Abstract:     
We examine how an auditor’s reputation for audit quality affects the selection of new auditors in a unique setting. Specifically, we investigate forced auditor switches after the collapse of ChuoAoyama and its successor, Misuzu, in a low litigation country, Japan, where the insurance value of auditing is minimal. We find that former ChuoAoyama clients with greater reputation concerns tended to switch away from Misuzu, a low-quality Big 4 audit firm. Our results also indicate that auditors’ sensitivity to reputation decreased after the collapse of Misuzu, perhaps because of intensified capacity constraints and decreased differences in perceived audit quality between Big 4 and Non-Big 4 auditors after the audit scandal and the introduction of the J-SOX.

Number of Pages in PDF File: 35

Keywords: auditor switch, agency cost, reputation loss

JEL Classification: M40, G34


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Date posted: January 6, 2010 ; Last revised: June 4, 2013

Suggested Citation

Murase, Hikaru and Numata, Shingo and Takeda, Fumiko, Reputation of Low-Quality Big 4 and Non-Big 4 Auditors: Evidence from Auditor Switches of Former ChuoAoyama Clients (August 31, 2011). Journal of Governance and Regulation 2(1): 7-23. Available at SSRN: https://ssrn.com/abstract=1532207 or http://dx.doi.org/10.2139/ssrn.1532207

Contact Information

Hikaru Murase
University of Tokyo - Department of Technology Management for Innovation
Tokyo
Japan
Shingo Numata
Deloitte Touche Tohmatsu ( email )
Paramount Plaza
Midtown Manhattan
New York, NY AB
United States
Fumiko Takeda (Contact Author)
University of Tokyo - Department of Technology Management for Innovation ( email )
Tokyo
Japan
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