What's in a Name? Reputation and Monitoring in the Audit Market

27 Pages Posted: 7 Sep 2016 Last revised: 25 May 2019

See all articles by Somdutta Basu

Somdutta Basu

Econ One Research, Inc.

Suraj Shekhar

Ashoka University

Date Written: April 23, 2019

Abstract

We study incentives under different information regimes by analyzing a rule change in the audit industry in the USA. Since February 2017, the name of the engagement partner has to be disclosed for all audit reports issued in the USA. We show that this quest for transparency has its pitfalls despite the increase in the level of information for investors. While the higher reputation building incentives can improve audit quality, an unintended consequence of the rule is that audit partners have a lower incentive to monitor other partners when names are disclosed. We find conditions under which the latter effect dominates the former.

Keywords: Audit, Disclosure, Collective Reputation, Engagement partner, Reputation, Monitoring

JEL Classification: L14, L51, M42

Suggested Citation

Basu, Somdutta and Shekhar, Suraj, What's in a Name? Reputation and Monitoring in the Audit Market (April 23, 2019). Available at SSRN: https://ssrn.com/abstract=2835228 or http://dx.doi.org/10.2139/ssrn.2835228

Somdutta Basu

Econ One Research, Inc. ( email )

United States

Suraj Shekhar (Contact Author)

Ashoka University ( email )

Ashoka University
Rajiv Gandhi Education City
Sonipat, 131029
India

HOME PAGE: http://surajshekhar.com/

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