The Geographic Decentralization of Audit Firms and Audit Quality

63 Pages Posted: 29 May 2019

See all articles by Matthew Beck

Matthew Beck

Michigan State University; Michigan State University, The Eli Broad College of Business and The Eli Broad Graduate School of Management, Students

Joshua L. Gunn

University of Pittsburgh - Katz Graduate School of Business

Nicholas Hallman

University of Texas at Austin

Date Written: May 1, 2019

Abstract

Audit firms are organized as collections of geographically decentralized offices. Decentralization allows for increased proximity between offices and clients, improving the efficiency of auditors’ interactions with client personnel. Yet decentralization also decreases the proximity between offices within each firm, potentially impeding auditors’ interactions with each other. We show that decreased proximity between offices reduces inter-office audit quality “spillovers” and that this effect is driven primarily by reduced monitoring and knowledge sharing. Our findings expand the “within office” view of audit production by demonstrating the importance of interactions between offices and the role of geographic proximity in facilitating them.

Keywords: audit quality, organizational structure, geographic distance, earnings quality, audit office size

JEL Classification: M41, M49, R30

Suggested Citation

Beck, Matthew and Gunn, Joshua L. and Hallman, Nicholas, The Geographic Decentralization of Audit Firms and Audit Quality (May 1, 2019). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3382532

Matthew Beck

Michigan State University ( email )

Agriculture Hall
East Lansing, MI 48824-1122
United States

Michigan State University, The Eli Broad College of Business and The Eli Broad Graduate School of Management, Students ( email )

East Lansing, MI
United States

Joshua L. Gunn

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

Nicholas Hallman (Contact Author)

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

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