The Role of Managerial Ability in Auditor Changes: Does Efficiency Matter?

• In Event: Breakfast and Research Forum
  In Roundtable Session: Table 11: Management's Role in Auditing Outcomes

Abstract

The purpose of this study is to examine the relationship between managerial ability and auditor changes. Using a new measure of managerial ability, we find robust statistical support for an inverse relationship between the ability of a company’s management to efficiently generate revenue and the likelihood of an auditor change. Specifically, companies with the most efficient managers are 76 percent less likely to experience an auditor change than companies with the least efficient management. This percentage increases to virtually 100 percent when we include only Big N auditor resignations. Our results are consistent with upper echelons theory, which suggests that managers and their individual characteristics play an integral role in organizational outcomes.

Authors

• Ryan Seay, University of Mississippi

• Tyler Williams, The University of Mississippi