Do school ties between auditors and client executives influence audit outcomes?

Yuyan GUAN, Lixin (Nancy) SU, Donghui WU, Zhifeng YANG

Research output: Journal PublicationsJournal Article (refereed)

44 Citations (Scopus)

Abstract

We identify connected auditors as those who attended the same university as the executives of their clients. Using manually collected data from China, we find that connected auditors are more likely to issue favorable audit opinions, especially for financially distressed clients. Moreover, companies audited by connected auditors report significantly higher discretionary accruals, are more likely to subsequently restate earnings downward, and have lower earnings response coefficients. Lastly, connected auditors earn higher audit fees. Collectively, our evidence suggests the impairment of audit quality when auditors and client executives have school ties and the presence of social reciprocity derived from school ties.
Original languageEnglish
Pages (from-to)506-525
Number of pages20
JournalJournal of Accounting and Economics
Volume61
Issue number2-3
Early online date28 Sep 2015
DOIs
Publication statusPublished - Apr 2016
Externally publishedYes

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Bibliographical note

Yuyan Guan appreciates Strategic Research Grant from City University of Hong Kong (Project ID: 7004108). Donghui Wu gratefully acknowledges research funding from Business School, The Chinese University of Hong Kong (Project ID: 4057030).

Keywords

  • Audit fee
  • Audit quality
  • School tie
  • Social network

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