The Demand for Auditor Reputation: Evidence from a Structural Model

46 Pages Posted: 20 May 2022 Last revised: 1 Sep 2022

See all articles by Aiyong Zhu

Aiyong Zhu

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

Christopher Koch

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management

Date Written: May 1, 2022

Abstract

This study applies a structural approach to provide novel evidence on the demand for auditor reputation. Using the discrete choice model for demand estimation, our findings reveal that auditors involved in restatements suffer reputational losses, particularly at the audit firm level. Furthermore, we identify differential effects, e.g., that reputational losses are larger for Big 4 than non-Big 4 auditors. Using the parameters obtained in the demand estimation, we perform counterfactual analyses. We find that being involved in restatements results in reputational losses of up to 3.8 million USD (0.1% of audit fees) per year, associated with a market share loss of up to 4.3%.

Keywords: audit market, auditor demand, restatements

JEL Classification: M42

Suggested Citation

Zhu, Aiyong and Koch, Christopher, The Demand for Auditor Reputation: Evidence from a Structural Model (May 1, 2022). Available at SSRN: https://ssrn.com/abstract=4106448 or http://dx.doi.org/10.2139/ssrn.4106448

Aiyong Zhu

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

Chengdu
China

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/

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