The Importance of Social Networks to Individual Auditors

Abstract

We examine the role that individual auditors’ social networks play in their careers. We focus on educational networks in China, as measured by the size of an auditor’s university alumni network, including those who are auditors in public accounting firms (auditor alumni) and those who are executives of public companies (executive alumni). These social networks widen auditors’ access to expertise, information, and potential clients, which should enhance their professional development and audit quality. We find that individual auditors with larger social networks: provide higher-quality audits; attract more clients and earn higher audit fees; exhibit a higher likelihood of receiving a promotion and moving to a higher-quality audit firm, and exhibit a lower likelihood of leaving public accounting. Consistent with expectations, connections to auditor (executive) alumni play a more prominent role for audit quality (client acquisitions and career advancement). Evidence surrounding an exogenous large expansion in auditor social networks reinforces the main results.

Keywords: individual auditors; social networks; alumni networks; school ties; audit quality; client acquisition; career pamni network, audit quality, client acquisition, career path

JEL Classification: M42, M51