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

59 Pages Posted: 13 Mar 2018

See all articles by John (Xuefeng) Jiang

John (Xuefeng) Jiang

Michigan State University - Department of Accounting & Information Systems

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: March 13, 2018

Abstract

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 after these treatment firms switch to Big N auditors, they have improved audit quality as measured through signed and absolute discretionary accruals, and financial statement divergence scores. 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.

Suggested Citation

Jiang, John (Xuefeng) and Wang, Isabel and Wang, Philip, Big N Auditors and Audit Quality: New Evidence from Quasi-Experiments (March 13, 2018). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3139642

John (Xuefeng) Jiang (Contact Author)

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States
517-432-3031 (Phone)
517-432-1101 (Fax)

HOME PAGE: http://www.msu.edu/~jiangj/

Isabel Wang

Michigan State University ( email )

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

HOME PAGE: http://www.msu.edu/~wangyany/

Philip Wang

Fisher School of Accounting, University of Florida ( email )

Gainesville, FL 32611-7166
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
127
rank
29,669
Abstract Views
369
PlumX Metrics