The Value of Auditor Industry Specialization - Evidence from a Structural Model
The Accounting Review (forthcoming)
54 Pages Posted: 31 Aug 2020 Last revised: 21 Jul 2022
Date Written: December 15, 2021
Abstract
This study investigates the value of auditor industry specialization. In the first step, we use a discrete choice model to derive the first-order demand for auditor industry specialization. Our results reveal that clients have a general preference for auditor industry specialization, relating to both audit firm and audit office specialization. Further, we observe that specializations at the audit firm and audit office are substitutes. We also find that larger and more complex clients have a stronger demand for specialization at the audit office level. In the second step, we use the results from the discrete choice model to quantify the value of auditor industry specialist for clients. We find that the overall value of industry specialization aggregated across all clients is 5.2 million US Dollars (0:36% of audit fees) and that industry specialization at the firm (office) level is decisive for auditor choice in 4% (6%) of all cases.
Keywords: auditor industry specialization, auditor demand, discrete choice model, counterfactual analysis
JEL Classification: M42, M48, L11, L84
Suggested Citation: Suggested Citation