Proprietary Information Spillovers and Supplier Choice: Evidence from Auditors

Posted: 16 Dec 2015

Date Written: December 1, 2015

Abstract

I test whether information spillover concerns are a causal determinant of supplier choice and whether suppliers are a conduit for these spillovers. Using the audit setting, where firms must use the services of an auditor to certify their financial statements, I document a reluctance of rival firms to engage the same auditor due to information-spillover concerns. This reluctance mitigates the benefits of industry specialization by auditors shown in prior literature. Using several quasi-natural experiments that exogenously vary the information-spillover costs of sharing the same auditor, while keeping the benefits of industry specialization constant, I find that same-industry rivals become less (more) likely to share the same auditor when the costs of information spillovers increase (decrease). I also find that firms initially sharing the same auditor make less similar decisions following an exogenous shock that compels them to switch auditors, suggesting that a legitimate reason may exist for client concerns about information spillovers.

Keywords: Information spillovers, Suppliers, Auditor choice, Quasi-natural experiments

JEL Classification: M42, D83, K31, L84

Suggested Citation

Aobdia, Daniel, Proprietary Information Spillovers and Supplier Choice: Evidence from Auditors (December 1, 2015). Review of Accounting Studies, Vol. 20, No. 4, 2015. Available at SSRN: https://ssrn.com/abstract=2703632

Daniel Aobdia (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2211 Campus Drive
Evanston, IL 60208
United States

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