Big N Auditor Concentration and Investment Decisions.

• In Event: Audit Market Competition

Abstract

This study investigates whether and how Big N auditor concentration facilitates information transfers among the firms within an industry - the spillover effects of industry peers’ accounting information on a company’s investment decisions, through enhanced information disclosures and quality.
Using a large sample from years 1988 – 2012, we hypothesize and find that a company in an industry with greater Big N auditor concentration is more responsive to its investment opportunities. Further, we hypothesize and find that greater Big N auditor concentration can increase firm investment efficiency, particularly in a way that reduces both the firm’s over- and under-investments. Collectively, our findings suggest that Big N auditor concentration generates positive externalities by improving the amount and quality of industry peers’ information disclosures and thus facilitating more efficient firm investment decisions.
To our best knowledge, this is the first empirical study to investigate the impact of Big N auditor concentration on information externalities in general, and firm investment decisions in particular, and provide large-sample evidence on the association of Big N auditor concentration with corporate investment decisions at the firm-level.

Authors

• Xudong Li, Monmouth University

• Lili Sun, University of North Texas