Title

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

Document Type

Journal article

Source Publication

Journal of Accounting and Economics

Publication Date

4-1-2016

Volume

61

Issue

2/3

First Page

506

Last Page

525

Publisher

Elsevier B.V.

Keywords

Audit fee, Audit quality, School tie, Social network

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.

DOI

10.1016/j.jacceco.2015.09.003

Print ISSN

01654101

Funding Information

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

Publisher Statement

Copyright © 2015 Elsevier B.V. All rights reserved.

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Recommended Citation

Guan, Y., Su, L. N., Wu, D., & Yang, Z. (2016). Do school ties between auditors and client executives influence audit outcomes? Journal of Accounting and Economics, 61(2/3), 506-525. doi: 10.1016/j.jacceco.2015.09.003