The Importance of Social Capital to Individual Auditors

56 Pages Posted: 22 Apr 2019

See all articles by Jeffrey Pittman

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management

Guochang Zhang

University of Hong Kong

Date Written: April 4, 2019

Abstract

We examine the role that individual auditors’ social capital plays in their audit quality, client acquisition activities, and career advancement. Our analysis focuses on social capital stemming from educational ties, as measured by the size of an auditor’s university alumni network among those who hold the posts of board chairpersons, CEOs, or CFOs of public companies. We posit that such social connections widen individual auditors’ scope to access information and potential clients, which, in turn, should facilitate their professional development as well as engender higher audit quality. Consistent with our predictions, we find that individual auditors with more social capital: (i) provide higher-quality audits; (ii) attract a larger client base as well as larger audit fees; and (iii) exhibit a higher likelihood of moving to a higher quality audit firm and a lower likelihood of leaving public accounting altogether. Additional evidence implies that auditors enjoy these benefits irrespective of whether they have direct social ties with the client’s top executives. Extensive sensitivity analysis helps dispel concerns that alternative explanations are responsible for our core results.

Keywords: individual auditors, social capital, alumni network, audit quality, client acquisition, career path

JEL Classification: M42, M51

Suggested Citation

Pittman, Jeffrey A. and Qi, Baolei and Zhang, Guochang, The Importance of Social Capital to Individual Auditors (April 4, 2019). Available at SSRN: https://ssrn.com/abstract=3365474 or http://dx.doi.org/10.2139/ssrn.3365474

Jeffrey A. Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Guochang Zhang (Contact Author)

University of Hong Kong ( email )

KK Leung Building
Faculty of Business and Economics
Hong Kong
+852 3917 1076 (Phone)

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