Sharing Knowledge or Proprietary Information? An Examination of Audit Clients Who Share the Same Audit Partner

• In Event: Knowledge Sharing and Spillovers

Abstract

We argue that knowledge transfers are more valuable when partners audit clients from the same product market. However, there are potential costs when rival companies share the same partner due to concerns about the leakage of proprietary information. Consistent with beneficial effects of knowledge transfers, we find that audit fees are lower and accounting misstatements are less frequent when rival companies share the same partner. On the other hand, we find that rival companies are less likely to share the same partner when they are more concerned about confidential proprietary information, as measured by redactions of proprietary information from SEC filings, the existence of trade secrets or proprietary information, and high levels of R&D and patents.

Authors

• Jung Koo Kang, University of Southern California

• Clive Lennox, University of Southern California

• Vivek Pandey, University of Southern California