Proprietary information spillovers and supplier choice: evidence from auditors

Proprietary information spillovers and supplier choice: evidence from auditors 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Proprietary information spillovers and supplier choice: evidence from auditors

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Publisher
Springer US
Copyright
Copyright © 2015 by Springer Science+Business Media New York
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance & Economics
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-015-9327-x
Publisher site
See Article on Publisher Site

Abstract

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.

Journal

Review of Accounting StudiesSpringer Journals

Published: Jun 26, 2015

References

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