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That's What Friends are for: Audit Quality and Accounting Employee Affiliations with Audit Firms

47 Pages Posted: 14 Sep 2015 Last revised: 8 Nov 2016

Andrew Bird

Carnegie Mellon University - Tepper School of Business

Nam Ho

Carnegie Mellon University - David A. Tepper School of Business

Chan Li

University of Pittsburgh - Katz Graduate School of Business

Thomas G. Ruchti

Carnegie Mellon University - Tepper School of Business

Date Written: September 1, 2015

Abstract

Non-executive accounting employees are “affiliated”, or alumni, if they previously worked for their companies’ audit firms. Using a unique data set consisting of job histories of accounting employees working at S&P 1500 companies who were previously employed at public accounting firms, we study the effect of alumni affiliations on audit quality. We find that companies with a larger proportion of alumni among their accounting employees are significantly less likely to issue financial misstatements, and have lower absolute abnormal accruals. Our results shed light on the way non-executive accounting employees affect audit quality, and are of practical importance to the hiring of accounting employees by industry companies.

Keywords: Non-executive accounting employees, Auditor alumni affiliations, Audit quality

JEL Classification: M41

Suggested Citation

Bird, Andrew and Ho, Nam and Li, Chan and Ruchti, Thomas G., That's What Friends are for: Audit Quality and Accounting Employee Affiliations with Audit Firms (September 1, 2015). Available at SSRN: https://ssrn.com/abstract=2659700 or http://dx.doi.org/10.2139/ssrn.2659700

Andrew Bird

Carnegie Mellon University - Tepper School of Business ( email )

Pittsburgh, PA 15213-3890
United States

Nam Ho

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Chan Li (Contact Author)

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

Thomas G. Ruchti

Carnegie Mellon University - Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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