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Does Investor Selection of Auditors Enhance Auditor Independence?

33 Pages Posted: 15 Oct 2002  

Brian W. Mayhew

University of Wisconsin, Madison - Department of Accounting and Information Systems

Joel Pike

University of Illinois at Urbana-Champaign - Department of Accountancy

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Date Written: August 1, 2002

Abstract

This paper reports the results of experiments designed to examine whether investor selection of auditors enhances auditor independence. The experimental design enables us to explore the effect on independence of different institutional rules over who hires and fires the auditors and to directly measure independence violations. The results suggest that transferring the power to hire and fire the auditor from managers to investors significantly decreases the portion of independence violations. Additional analysis suggests that a reduction in independence violations increases the overall surplus generated in the markets examined.

Keywords: auditor independence, auditor objectivity, experimental economics

JEL Classification: M40, M49, D80, G38, K22

Suggested Citation

Mayhew, Brian W. and Pike, Joel, Does Investor Selection of Auditors Enhance Auditor Independence? (August 1, 2002). Available at SSRN: https://ssrn.com/abstract=321294 or http://dx.doi.org/10.2139/ssrn.321294

Brian W. Mayhew (Contact Author)

University of Wisconsin, Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-262-2714 (Phone)
608-263-0477 (Fax)

Joel Pike

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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