Abstract
This study examines whether companies realize operational benefits from engaging a new auditor recently dismissed by a competitor. While research shows that auditors can share information across clients, there is limited research on the potential impact of auditor information spillovers on clients’ operational outcomes. I find that companies that switch to a competitor’s former auditor realize significant improvements in operating performance and that this association varies predictably with several cross-sectional factors. I also find that these improvements are driven by increases in operating margins as opposed to revenue increases and that the outcomes of these switches are influenced by characteristics of the auditors and competitor companies involved in the switches. The pattern of these findings suggests that auditors may be sharing useful information with new clients after these switches. More broadly, the results suggest that the value of an audit (auditor) extends beyond the traditional considerations of capital market participants.
| Original language | English |
|---|---|
| Pages (from-to) | 3065-3109 |
| Number of pages | 45 |
| Journal | Review of Accounting Studies |
| Volume | 30 |
| Issue number | 3 |
| DOIs | |
| State | Published - Sep 2025 |
Bibliographical note
Publisher Copyright:© The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2025.
Funding
This paper is based on my dissertation completed at the University of Arkansas, which was awarded the 2022 Outstanding Auditing Dissertation Award from the Auditing Section of the American Accounting Association. I am grateful for the support and guidance from my dissertation committee: Cory Cassell (co-chair), Jonathan Shipman (co-chair), and Gary Peters. I also thank Miguel Minutti-Meza (editor) and two anonymous reviewers for their contributions to this study. Additionally, I am grateful for helpful comments and suggestions from Kris Allee, Justin Blann, Brian Bratten, Brian Bushee, Tina Carpenter, Monika Causholli, Mark Cheng, Ben Commerford, Liz Cowle, Martin Fiscus, Nargess Golshan, Erin Henry, Mindy Kim (discussant), Young Kim, Ahmet Kurt (discussant), Linda Myers, Jeff Payne, Chris Pearson, Andrew Pierce, Caleb Rawson, Vernon Richardson, Dahlia Robinson, Aaron Roeschley, Stephen Rowe, Tom Ruchti, Mike Truelson (discussant), Jenny Ulla, Cynthia Vines, Zac Wiebe, Hong Xie, Dave Ziebart, workshop participants at the University of Arkansas and the University of Kentucky, and participants at the 2019 AAA/Deloitte Foundation/J. Michael Cook Doctoral Consortium, the 2019 AAA Accounting PhD Rookie Recruiting and Research Camp, the 2021 Hawaii Accounting Research Conference, the 2021 AAA Auditing Section Midyear Meeting, and the 2021 AAA FARS Midyear Meeting. I also appreciate the insights from several anonymous audit practitioners.
| Funders | Funder number |
|---|---|
| American Accounting Association | |
| Jonathan Shipman | |
| University of Kentucky |
Keywords
- Auditor information spillovers
- Auditor selection
- Operating performance
- Operational value of auditor knowledge
ASJC Scopus subject areas
- Accounting
- General Business, Management and Accounting