Auditor Industry Specialization and Client Disclosure Quality

Abstract

We examine the relation between audit firm industry specialization and client disclosure quality. Our motivation for conducting this research arises from the claims made by each of the Big5 public accounting firms that industry specialization enables each to provide superior service and quality to clients in its target industries.

We document a positive association between industry-specialized audit firms and analysts' rankings of disclosure quality in unregulated industries, but no relation in regulated industries. Alternative measures of auditor industry specialization support our conclusions. Our results suggest industry-specialized audit firms add value to clients in unregulated industries in the form of improved disclosure quality.

JEL Classification: M41, M43, M49, G29