To Share or Not to Share: The Importance of Peer Firm Similarity to Auditor Choice.

• In Event: Auditor Choice

Abstract

A firm’s decision on whether to choose the same auditor as a close competitor reflects a trade-off between exercising caution to protect its proprietary information and pursuing the benefits of auditor expertise. Using a pairwise similarity measure based on descriptions from regulatory filings, we find that peer firms are more likely to engage the same auditor when their product offerings are more similar. Importantly, we find this relation is greater when the focal firm experiences more litigation risk, but is moderated when the focal firm operates in a highly competitive or innovative industry, is a market leader, or has a “cozy” relationship with its auditor. We extend prior research on auditor choice by analyzing whether firms perceive that the upside stemming from auditor expertise dominates the downside of greater vulnerability to proprietary information leakage to competitors, as well as the role that auditor and client characteristics play in this decision.

Authors

• Kenneth L Bills, University of Arkansas

• Matthew Cobabe, Virginia Tech University

• Jeffrey Pittman, Memorial University of Newfoundland

• Sarah E Stein, Virginia Tech