Leveraging Strategies in the Post-SOX Era: Audit Revenue and Restatement Effects

• In Event: Continental Breakfast and Research & Education Forum
  In Roundtable Session: Table 8: Auditing Effects on Reporting Delays/Errors

Abstract

We examine how industry shocks occurring in the last decade affected human capital leveraging, the ratio of professionals to partners, by firms differing in size (i.e., Big 4, Tier 2, and other) and over time and whether leveraging changes are associated with changes in audit firm revenue and audit quality. We find that for non-Big 4 but not Big 4 firms, changes in leverage were significantly higher in the early and late post-SOX periods (2004-2006 and 2007-2009, respectively) than 2003. Further, the association between changes in leverage and changes in offices, litigation rates, revenue and restatements differ for non-Big 4 and Big 4 firms. Across firms, changes in firm revenue (restatements) were significantly higher (lower) in the early and late post-SOX periods (late post-SOX period only) than 2003. Finally, the association between changes in leverage and changes in revenue (restatements) varied over the sample period and across firm size categories.

Authors

• Barbara Murray Grein, Drexel University

• Anna M Cianci, Wake Forest University