Do supply shocks in the audit partner labor market affect auditor choice? Evidence from a quasi-natural experiment

Yanming Cao; Zhuoan Feng

doi:10.1016/j.cjar.2022.100221

Do supply shocks in the audit partner labor market affect auditor choice? Evidence from a quasi-natural experiment

Yanming Cao, Zhuoan Feng^*

^*Corresponding author for this work

Department of Accounting and Corporate Governance

Research output: Contribution to journal › Article › peer-review

3 Citations (Scopus)

153 Downloads (Pure)

Abstract

We examine whether supply shocks in the audit partner labor market induce clients to switch audit partners. We argue that audit partners in their early careers (i.e., junior partners) charge low audit fees to attract clients, which induces client firms to switch from senior partners to junior partners when there are more junior partners available. Utilizing the Big4 localization policy, we find that Big4 clients are more likely to replace senior auditors with junior auditors to cut costs after the policy. Furthermore, the results are mainly driven by clients who are charged high fees. Our empirical evidence enriches the understanding of auditor choice determinants and informs the ongoing debates surrounding new regulations for Big4 firms in China.

Original language	English
Article number	100221
Pages (from-to)	1-21
Number of pages	21
Journal	China Journal of Accounting Research
Volume	15
Issue number	1
DOIs	https://doi.org/10.1016/j.cjar.2022.100221
Publication status	Published - Mar 2022

Bibliographical note

Copyright 2022 Sun Yat-sen University. Production and hosting by Elsevier B.V. Version archived for private and non-commercial use with the permission of the author/s and according to publisher conditions. For further rights please contact the publisher.

Keywords

Audit fees
Audit partner labor market
Auditor switch
Big4 auditors
Supply shock of audit labor market

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10.1016/j.cjar.2022.100221Licence: CC BY-NC-ND

Publisher version (open access)Final published version, 474 KBLicence: CC BY-NC-ND

Cite this

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abstract = "We examine whether supply shocks in the audit partner labor market induce clients to switch audit partners. We argue that audit partners in their early careers (i.e., junior partners) charge low audit fees to attract clients, which induces client firms to switch from senior partners to junior partners when there are more junior partners available. Utilizing the Big4 localization policy, we find that Big4 clients are more likely to replace senior auditors with junior auditors to cut costs after the policy. Furthermore, the results are mainly driven by clients who are charged high fees. Our empirical evidence enriches the understanding of auditor choice determinants and informs the ongoing debates surrounding new regulations for Big4 firms in China.",

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Do supply shocks in the audit partner labor market affect auditor choice? Evidence from a quasi-natural experiment

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