How Big-4 Firms Improve Audit Quality

• 成果类型: Article
• 署名作者: Che, Limei; Hope, Ole-Kristian; Langli, John Christian
• 署名单位: University of South-Eastern Norway; University of Toronto; BI Norwegian Business School
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2019.3370
• 发表日期: 2020
• 页码: 4552-4572
• 关键词: Big-4 effect; auditing; Audit quality; labor economics; learning; incentives; monitoring; auditor change; Private Firms; research design

摘要

This paper studies whether and how Big-4 firms provide higher-quality audits than non-Big-4 firms. Specifically, we first examine a Big-4 effect and then explore three sources of the Big-4 effect. To test the Big-4 effect, we use a unique data set of individual audit partners for a large sample of private companies and a novel research design exploiting the fact that auditees may follow the auditor who switches affiliation from a non-Big-4 firm to a Big-4 firm. Thus, we compare audit quality and audit fees of the same partner-auditee pairs before and after the switch. The results show that the Big-4 effect exists in the private-firm segment. More important, we find evidence for three sources of the Big-4 effect. First, Big-4 firms are able to recruit non-Big-4 partners who deliver higher audit quality than other non-Big-4 partners in the preswitch period. Second, enhanced learning has taken place after the switch. Third, the increased audit quality can also be attributed to stronger incentives/monitoring. These are new findings to the literature.