Industry-Specific Knowledge Transfer in Audit Firms: Evidence from Audit Firm Mergers in China

• 成果类型: Article
• 署名作者: He, Xianjie; Kothari, S. P.; Xiao, Tusheng; Zuo, Luo
• 署名单位: Shanghai University of Finance & Economics; Massachusetts Institute of Technology (MIT); Central University of Finance & Economics; Cornell University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2018-0651
• 发表日期: 2022
• 页码: 249-277
• 关键词: INSTITUTIONAL ENVIRONMENT; earnings management; nonaudit services; quality evidence; big 4; determinants; expertise; networks; INDEPENDENCE; alliances

摘要

Using a difference-in-differences approach, we examine the effect of industry-specific knowledge transfer on audit performance after a merger of two Chinese audit firms with different levels of expertise in an industry. For clients in an industry audited by both merging audit firms, those audited by the audit firm less specialized in that industry belong to the treatment group, while all other clients belong to the control group. We find an economically significant improvement in audit quality (as reflected in a reduction in financial misstatements) for the treatment group relative to the control group in the same merged audit firm. We show the treatment effect is not driven by changes in auditor incentives or personnel movement and is more pronounced when we expect stronger communication between the less and more specialized auditors after the merger. We caution that our findings are specific to China and may not generalize to other countries.