Determinants and Consequences of Auditor Dyad Formation at the Top-Level of Audit Teams

64 Pages Posted: 17 Feb 2016 Last revised: 16 May 2019

See all articles by Benedikt Downar

Benedikt Downar

Technische Universität München (TUM)

Jürgen Ernstberger

Technische Universität München

Christopher Koch

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management

Date Written: April 2019

Abstract

This study investigates the determinants and consequences of forming dyads at the top level of audit teams, i.e., dyads between concurring and lead auditor. We apply the sociological theory of homophily, i.e., the implicit preference for similar others, to hierarchically structured auditor dyads. Semi-structured interviews with highly experienced auditors show that concurring auditors enjoy some autonomy in selecting the lead auditor, providing opportunities for homophily to matter. Our regression analyses reveal that sharing the same dialect and gender increases the likelihood of dyad formation beyond what one would expect based on the characteristics of the pool of available auditors. Further, we observe that forming auditor dyads sharing the same age is avoided, suggesting that the need to establish a legitimate hierarchical relationship through social differentiation represents a boundary condition for homophily. Testing for the consequences of auditor dyad formation using an instrumental variable approach, we find that auditor dyads sharing the same dialect provide lower audit quality. We conclude that homophily matters in auditor dyad formation with potentially adverse consequences for audit quality.

Keywords: homophily; distancing; auditor dyad; concurring auditor; lead auditor

Suggested Citation

Downar, Benedikt and Ernstberger, Jürgen and Koch, Christopher, Determinants and Consequences of Auditor Dyad Formation at the Top-Level of Audit Teams (April 2019). Available at SSRN: https://ssrn.com/abstract=2732480 or http://dx.doi.org/10.2139/ssrn.2732480

Benedikt Downar

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

Jürgen Ernstberger (Contact Author)

Technische Universität München ( email )

Arcisstraße 21
Munich, 80333
Germany

Christopher Koch

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management ( email )

Mainz
Germany
+49 (6131) 3929990 (Phone)

HOME PAGE: http://https://www.cg.bwl.uni-mainz.de/

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