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Because of the inherent difficulty in measuring disclosure quality, little is known about the relationship between disclosure quality and auditors. We measure disclosure quality as the likelihood of a firm disclosing the identities of its major customers. The advantage of this measure over other measures of disclosure quality is that we can actually observe firms not disclosing major customer firm information. Using a logistic regression, we find that the likelihood of a firm disclosing the identities of its major customers is increasing in the abnormal audit fees paid to the auditor and decreasing in the workload compression of the audit office. In addition, we find that a firm audited by either one of the Big N or one of the Second-Tier auditors is more likely to disclose the identities of their major customer(s). Finally, we find that audit offices whose clientele consists largely of firms with major customers are more likely to have clients which fully disclose the identities of their major customer(s).
Kenneth J Reichelt, Louisiana State University
John Daniel Eshleman, Louisiana State University
Joseph Legoria, Louisiana State University