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

See all articles by Qiang Guo

Qiang Guo

University of Southern Denmark - Department of Business and Economics

Christopher Koch

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management

Aiyong Zhu

Southwestern University of Finance and Economics (SWUFE) - School of Accounting

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

Guo, Qiang and Koch, Christopher and Zhu, Aiyong, The Value of Auditor Industry Specialization - Evidence from a Structural Model (December 15, 2021). The Accounting Review (forthcoming), Available at SSRN: https://ssrn.com/abstract=3673987 or http://dx.doi.org/10.2139/ssrn.3673987

Qiang Guo

University of Southern Denmark - Department of Business and Economics ( email )

Campusvej 55
DK-5230 Odense, 5230
Denmark

Christopher Koch (Contact Author)

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management ( email )

Mainz
Germany
+49 (6131) 3929990 (Phone)

HOME PAGE: http://https://www.cg.bwl.uni-mainz.de/

Aiyong Zhu

Southwestern University of Finance and Economics (SWUFE) - School of Accounting ( email )

Chengdu
China

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