TY - JOUR
T1 - Proprietary information spillovers and supplier choice
T2 - evidence from auditors
AU - Aobdia, Daniel
N1 - Funding Information:
This paper is based on my dissertation at the UCLA Anderson School of Management, originally titled “Proprietary Information Spillovers and Auditor Choice.” I am highly indebted to my dissertation committee members—David Aboody, Judson Caskey, Hugo Hopenhayn, Jack Hughes (chair), and Brett Trueman —for their invaluable guidance and support. I also thank Stephen Penman (editor), two anonymous referees, Ray Ball, Randolph Beatty, Craig Chapman, Jon Lewellen, Thomas Lys, Robert Magee, Mariko Sakakibara, Richard Sansing, Junko Sasaki, Beverly Walther, and seminar participants at Columbia University, Dartmouth College, INSEAD, London Business School, Massachusetts Institute of Technology, Northwestern University, New York University, Stanford University, UCLA Anderson School of Management, University of Chicago, University of Michigan, University of Utah, and Wharton School of the University of Pennsylvania for their helpful comments and discussions on previous versions of this paper. I also thank Laurent Fresard for helpful comments on the import data and Peter Schott for making the import data available on his website. I gratefully acknowledge financial support from the Deloitte Foundation. I wrote this paper before joining the Public Company Accounting Oversight Board (PCAOB). The views expressed in this paper are my own and do not necessarily reflect the views of the Board, individual Board members, or staff of the PCAOB.
Publisher Copyright:
© 2015, Springer Science+Business Media New York.
PY - 2015/12/1
Y1 - 2015/12/1
N2 - I test whether information spillover concerns are a causal determinant of supplier choice and whether suppliers are a conduit for these spillovers. Using the audit setting, where firms must use the services of an auditor to certify their financial statements, I document a reluctance of rival firms to engage the same auditor due to information-spillover concerns. This reluctance mitigates the benefits of industry specialization by auditors shown in prior literature. Using several quasi-natural experiments that exogenously vary the information-spillover costs of sharing the same auditor, while keeping the benefits of industry specialization constant, I find that same-industry rivals become less (more) likely to share the same auditor when the costs of information spillovers increase (decrease). I also find that firms initially sharing the same auditor make less similar decisions following an exogenous shock that compels them to switch auditors, suggesting that a legitimate reason may exist for client concerns about information spillovers.
AB - I test whether information spillover concerns are a causal determinant of supplier choice and whether suppliers are a conduit for these spillovers. Using the audit setting, where firms must use the services of an auditor to certify their financial statements, I document a reluctance of rival firms to engage the same auditor due to information-spillover concerns. This reluctance mitigates the benefits of industry specialization by auditors shown in prior literature. Using several quasi-natural experiments that exogenously vary the information-spillover costs of sharing the same auditor, while keeping the benefits of industry specialization constant, I find that same-industry rivals become less (more) likely to share the same auditor when the costs of information spillovers increase (decrease). I also find that firms initially sharing the same auditor make less similar decisions following an exogenous shock that compels them to switch auditors, suggesting that a legitimate reason may exist for client concerns about information spillovers.
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U2 - 10.1007/s11142-015-9327-x
DO - 10.1007/s11142-015-9327-x
M3 - Article
AN - SCOPUS:84947022009
SN - 1380-6653
VL - 20
SP - 1504
EP - 1539
JO - Review of Accounting Studies
JF - Review of Accounting Studies
IS - 4
ER -