Proprietary information spillovers and supplier choice: evidence from auditors

Daniel Aobdia*

*Corresponding author for this work

Research output: Contribution to journalArticle

14 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)1504-1539
Number of pages36
JournalReview of Accounting Studies
Volume20
Issue number4
DOIs
StatePublished - Dec 1 2015

Keywords

  • Auditor choice
  • Information spillovers
  • Quasi-natural experiments
  • Suppliers

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)

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