Information Asymmetry and Competitive Bidding in Auditing

9 Pages Posted: 5 Jun 2006

See all articles by F. Gerard Adams

F. Gerard Adams

Northeastern University - D’Amore-McKim School of Business

Jean C. Bedard

Bentley University - Department of Accountancy

Karla M. Zehms

University of Wisconsin - Madison - Department of Accounting and Information Systems

Abstract

This article finds that clients with greater risk of fraud are less likely to engage prospective auditors in competitive bidding, consistent with the theory that these companies seek to limit access to information that might reveal their high-risk status. In contrast, we find no support for the expectation that companies with higher agency costs will seek competitive auditor bids, due to the need for better monitoring. Our results also show that bidding competition is more likely when the bidding firm is not an industry specialist, when clients have more active corporate governance, and when there are difficulties with the predecessor auditor.(JEL D44, D82, M42)

Suggested Citation

Adams, F. and Bedard, Jean C. and Zehms, Karla M., Information Asymmetry and Competitive Bidding in Auditing. Economic Inquiry, Vol. 43, Issue 2, pp. 417-425, 2005. Available at SSRN: https://ssrn.com/abstract=906242

F. Adams (Contact Author)

Northeastern University - D’Amore-McKim School of Business ( email )

39 Stafford Rd.
Boston, MA 02115
617-373-2764 (Phone)
617-373-8798 (Fax)

Jean C. Bedard

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452
United States
781-891-2410 (Phone)
781-891-2896 (Fax)

Karla M. Zehms

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-234-1052 (Phone)
608-265-5031 (Fax)

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