Does Investor Selection of Auditors Enhance Auditor Independence?
Brian W. Mayhew
University of Wisconsin, Madison - Department of Accounting and Information Systems
University of Illinois at Urbana-Champaign - Department of Accountancy
August 1, 2002
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.
Number of Pages in PDF File: 33
Keywords: auditor independence, auditor objectivity, experimental economics
JEL Classification: M40, M49, D80, G38, K22
Date posted: October 15, 2002