Big N Auditors and Audit Quality: New Evidence from Quasi-Experiments

54 Pages Posted: 13 Jun 2015 Last revised: 21 Nov 2017

See all articles by John (Xuefeng) Jiang

John (Xuefeng) Jiang

Michigan State University

Isabel Yanyan Wang

Michigan State University

K. Philip Wang

Fisher School of Accounting, University of Florida

Multiple version iconThere are 2 versions of this paper

Date Written: October 19, 2017


Whether Big N auditors provide higher quality audits than non-Big N auditors remains a debate. Big N acquisitions of non-Big N auditors provide a unique setting of exogenous shocks to the acquired non-Big N auditors’ client firms because they have to change auditors. We identify a sample of 331 treatment firms that switched to Big N auditors due to such Big N acquisitions. Using a difference-in-differences research design, we find that these treatment firms’ audit quality, measured through signed and absolute discretionary accruals, and financial statement divergence scores, improves after they switch to Big N auditors. In contrast, we find that mergers or acquisitions among non-Big N auditors have little impact on the audit quality of their affected client firms. Further cross-sectional analyses suggest the improvement in audit quality is likely due to Big N auditors’ general competence rather than their industry-specific expertise. Finally, we find no significant stock market reactions in the treatment firms around the announcements of Big N acquisitions, indicating that the capital markets may not attach any premium to improved audit quality associated with hiring a big N auditor.

Keywords: Big N, non-Big N, audit quality,auditor mergers, auditor acquisitions, causal effect, quasi-experiment

JEL Classification: M41, M49

Suggested Citation

Jiang, John (Xuefeng) and Wang, Isabel and Wang, Philip, Big N Auditors and Audit Quality: New Evidence from Quasi-Experiments (October 19, 2017). Available at SSRN: or

John (Xuefeng) Jiang (Contact Author)

Michigan State University ( email )

632 Bogue St Ste N505
Eli Broad College of Business
East Lansing, MI 48824
United States
517-432-3031 (Phone)
517-432-1101 (Fax)


Isabel Wang

Michigan State University ( email )

N233 Business Complex
Broad School of Business
East Lansing, MI 48824-1122
United States


Philip Wang

Fisher School of Accounting, University of Florida ( email )

Gainesville, FL 32611-7166
United States

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