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). {7004108, 4057030}
Publisher Statement
Copyright © 2015 Elsevier B.V. All rights reserved.
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
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